Market Profile Question

[Stockaddict 10]

One area I find interesting on this forum is market profile. I had never heard of this method until I found this forum. It seems that market profile has been heavily discussed here among futures traders.

 

My question is: Can market profile be applied to markets other than the futures markets? Is this methodology designed only for commodities? I have never heard stock traders mentioning this.

[TinGull 10]

I think it's more in tuned with futures trading as it's not as news dependent as equities are. The auction theory lends itself more so the futures market where many companies are intertwined into one commodity rather than a single company where it's earnings and it's news really are what drives the price of the stock.

 

Just my 2 cents

[Soultrader 12]

I had thought market profile was used by traders mostly for the futures market. HOWEVER, I just recently saw a stock trader plotting market profile charts for IBM and others. I was quite surpised to see this.

 

I am not sure how effective MP is with equities but I finally met one trader who uses it on stocks.

[MrPaul 10]

  Soultrader said:

I had thought market profile was used by traders mostly for the futures market. HOWEVER, I just recently saw a stock trader plotting market profile charts for IBM and others. I was quite surpised to see this.

 

I am not sure how effective MP is with equities but I finally met one trader who uses it on stocks.

 

Here's an excerpt review based on the book "Steidlmayer on Markets: Trading with Market Profile, 2nd Edition"

 

...Steidlmayer on Markets shows readers how to find these opportunities using the innovative techniques developed by the author during his many years of trading the market. This fully updated Second Edition covers innovations in both technology and technique-and broadens the scope of "market profile" to include stocks.

[hanz 10]

how do you trade a 23 hours market with market profile?

 

i mean the YM,NQ

 

should the start session be 930am EST? ends at 415am EST?

[MC 10]

  hanz said:

how do you trade a 23 hours market with market profile?

 

i mean the YM,NQ

 

should the start session be 930am EST? ends at 415am EST?

 

That's the session most plot for MP. MP is about mapping TPO's to reveal market structure, after hours is quirky and thin volume in comparison so it's not as valuable IMO.

[nickm001 10]

use volume MP instead of TPOs, may give you better structure where the trading happened.

[MC 10]

  nickm001 said:

use volume MP instead of TPOs, may give you better structure where the trading happened.

 

In my limited use MP and it's TPO's reveal structure S&R better than volume profiling. Also the question was about what session to profile and personally I weigh the action with the most participation more. This action is bound to = higher volume.

 

JMHO

[alleyb 10]

MP can be applied to anything including individual stocks for at its root is the standard bell curve and therefore it is about statistical analysis out of which is borne probability studies. Using this one can create trading rules for entry and exit. MP used in multiple baskets IE say 100 IBM +1 Currency Future Plus +1 Bond Future +1 Stock Indices is an additional way of incorporating MP whereby it becomes a diversified (debateable I know) basket but this style is really only applicable for institutional accounts

[BlowFish 10]

  MC said:

In my limited use MP and it's TPO's reveal structure S&R better than volume profiling. Also the question was about what session to profile and personally I weigh the action with the most participation more. This action is bound to = higher volume.

 

JMHO

 

I'm pretty sure this is 'self fulfilling' (who cares if you can exploit it right?) If you look at Jperls fantastic 'trading with market statistics threads' he puts forward a very good case for volume.

[MC 10]

  BlowFish said:

I'm pretty sure this is 'self fulfilling' (who cares if you can exploit it right?) If you look at Jperls fantastic 'trading with market statistics threads' he puts forward a very good case for volume.

 

Of course all that matters is that you can exploit something. I have tried both and like I said, in my experience TPO is more exploitable for me. Often the bellcurve looks similar as one might expect but shows me less noise on TPO'S. FWIW I still run the volume based POC along with MP to look for any discrepancy there.

 

Jperl has TREMENDOUS threads, and volume based structure works for him. There is no right or wrong answer in the markets. I was stating my opinion and what works best for me, nothing more.

[alleyb 10]

I am a tradional kind of guy in that the original NYSE hours plus the 15 minutes IE: 9:30am-4:15pm ET for Stock Indices and 8:20am-3pm for Bonds etc not only work but there is a reason why they still work. The mutual funds and asset managers and fund managers etc still work traditional hours and in fact in many cases what the exchanges have not figured out is that many funds require the exchange to be open to be able ot transact business from a fiduciary point of view (there is a little matter that many people are in fact forbidden to transact business outside of the office due to compliance reason not least of which is a taped phone) and the exchanges are officially open the hours stated. There are other reasons in that the guys who make up the large proportion of volume have little interest in working more than the necessary hours per day and they in turn when they train people pass down the same old traditional ways and it is likely to be like this for at least another generation of fund managers.

You will note that I am borne out in this in the sheer volume that originates in markets at the "open" and the "close" where it is not unual in Mini S&P for example to have a 1 minute 100k+ volume bar at those times

[alleyb 10]

as to TPO vs Volume Profile. I use both. Ultimately it is all about the pattern so find whatever works for you and do not deviate and if you have seen it before trust it to work again

[Guest forsearch]

Alex,

You've worked at a bank desk trading institutional spot Forex. How did you employ MP - if at all - whilst working in the City and in France?

[alleyb 10]

As a Prop. Trader I used MP across 240 minutes for FX and 30 minutes for futures markets.

Still do although I suspect there is a case for finding a way to break the 30 minutes up into segment of 26 mintes. that is not 26 minutes continuous but 26 + 4 = 30 then another 26 + 4 etc.

[Guest forsearch]

  alleyb said:

Still do although I suspect there is a case for finding a way to break the 30 minutes up into segment of 26 mintes. that is not 26 minutes continuous but 26 + 4 = 30 then another 26 + 4 etc.

 

This is curious, indeed. Might I enquire as to the rationale for doing so?

[alleyb 10]

observation over many years rather than devine science

You say it is curious. then you must not have read from Don Jones of Cisco-Futures that he believes the optimal profile timeframe to be 28+ minutes rather than 30

[MightyMouse 12]

Stock,

 

The MP works like a charm on individual stocks. As long as you have buying and selling activity, you'll have a MP. Whenever I look at a stock, the first thing I look at is it's MP.

 

You can use MP on the 24 hour markets, pit traded vehicles or any other actively traded security

[jebidaya 10]

On trend days I have problem with MP due to waiting for the extreme or poc/vwap rather than the edge or live lvl, 1 std from vwap. I know they're statistically low % of days that actually trend in a month yet seem to occur much more frequently in these volatile times. Any input would be greatly appreciated on how to shift bias to edge from extreme or how someone determines a trend day early on in day.

[Hlm 10]

  jebidaya said:

On trend days I have problem with MP due to waiting for the extreme or poc/vwap rather than the edge or live lvl, 1 std from vwap. I know they're statistically low % of days that actually trend in a month yet seem to occur much more frequently in these volatile times. Any input would be greatly appreciated on how to shift bias to edge from extreme or how someone determines a trend day early on in day.

It's an old post (five months) and VERY basic, but this might help some....LINK. For example today we opened up inside the VA used on Thursday (950.50 973.50 986.00) which was also a virgin. Upon no interest overnight OR right on open, we "trend" down to the next VA's (900.25 908.75 924.25 and 912.24 921.25 924.75. At which point we start our exploration inside.

[alleyb 10]

The establishment of identifying early the type of day actually comes from the Data Warehouse first.

EG: What follows (ie probability) on a Monday that is also a Bond Auction Day (or whatever the daily event is) that follows the previous Friday's NFP which was a Incomplete Neutral Day

IE: In simplistic terms it is a case of asking questions along the lines of where is the market in relation to today's open in relation to: previous Close/Highs/Lows/POC Short Medium Long Term/: What is the market doing IE Lower Highs Lower Lows with Constant Rotation (this is Key) and what is happening to Value both in terms of emerging or in terms of Short Medium and Long Term.

Understanding the Position (Long/Short and How Many... what used to be established from the CBOT LDB) of the Street is also useful and I have developed and shown how to do this without the official LDB in MP101 and MP102.

Understanding the position of the market in relation to the 4 steps of activity as well can help.

EG: All we did this am (Nov 10th) was revert to the recent mean which was also a POC from which the selling then started in earnest trapping many who were trying to trade from a fundamental/event risk point of view who had little understanding of those matters. After all who cares what the funnymentals really are for its not the funnymentals that count but the price reaction to them that matters. If the expected is not happening then the opposite must be true. From all this the pattern of the volume will then be self evident to confirm as to whether the market is a Trend Day or not displaying the patterns of 1st / 2nd / 3rd STD whereby it becomes necessary to foresake Trade Location to be on board the Vertical Move as opposed to requiring Trade Location in a Horizontal Move.

The day Nov 10th was marked as not a Trend Day at all but a Normal Variation Day with Trend Like Properties which then culminated with the late trade being some form of Incomplete Neutral Distribution. Please note that some of the phrases I am using are mine not Pete's/Dalton's/Jones's and represent the direction that so called Traditional MP is moving into as the markets evolve. At least it is the direction that I moved to some years ago.

PS: The Data Warehouse shows that Trend days in the Traditional sense occur 11.67% of the time but in terms of the evolving New MP or Adjusted MP actually occur 19.58% IE: 1/5th or One Day Per Week and there is no preference to which Week or which Month of the Year. The most likely day for a Trend Day is actually a Thursday

[Hlm 10]

  alleyb said:

The day Nov 10th was marked as not a Trend Day at all but a Normal Variation Day with Trend Like Properties which then culminated with the late trade being some form of Incomplete Neutral Distribution.

It all depends on the time frame and the concept of fractals within the market. One can "trend" back and forth around a POC during consolidation. Each of those legs can be as much of a trend as the breakout of that consolidation. If the market opens near the high and closes near the low with very little consolidation in the middle how can it not be called a "Trend Day"? Maybe I am missing something.

[alleyb 10]

What you write about "trend" back and forth Hlm is true just as with a 1st STD there are 2nd and 3rd STDs making up the 1st, 1st and 3rd making up the 2nd and 1st and 2nd making up the 3rd.

Markets move in even the minutest Time Frame through a back and forth action where some part is Responsive and some part is Initiative creating the vertical and horizontal planes. The key to this is understanding the Dominant Trader Time Frame and therefore influence and therefore what and how your reaction should be.

Certainly your statement about Time Frame is valid and your description of a Trend day is true BUT and this is where I differ in stating that today was a Normal Variation Day with Trend Like Properties we did not close near the low but fully 1/3rd of the way back up. The Days Range was 46 points wide with the settlement 15.5 points off the low but if the close had been in the lower quadrant then I would have stated that the day was a full on Trend Day.

 

The original question raised was how to identify a Trend Day early on and at risk of repeating myself once the interrogation of the Data Warehouse has extracted the probabilty scenario then the proof is via the volume pattern together with the answers to the various questions of where is the market in relation to.......and yes what Time Frame....Short, Medium, Long Term.....Time Frame is about advantage, acceptance, fairness and NEED to trade.

[Hlm 10]

Thanks for the clarification...great information and I don't disagree . However, when most day traders talk about trend versus consolidation days (at least the ones I know), they are really talking about which side of the market will be more favorable to their trades. Is there a bias for continuation and letting profits run or is the market consolidating and one should look for trades with smaller targets in both directions? Knowing when the probability is higher for a day with "Trend Like Properties" can be beneficial for an individual who wants to keep it simple with the information outside the intraday realm. From what I have experienced, for many day traders the difference between an actual trend day and one with trend like properties is just semantics.

[darthtrader2.0 10]

  BlowFish said:

I'm pretty sure this is 'self fulfilling' (who cares if you can exploit it right?) If you look at Jperls fantastic 'trading with market statistics threads' he puts forward a very good case for volume.

 

Well first I should say that to me Mind Over Markets is the best trading book ever written, if you throw out or don't get into some kind of "religious" mindset about ideas. No one has ever done a better book on how markets breathe but that doesn't mean its exactly right, its moving into the realm of mythology at this point.

The fundamental problem with market profile is assuming a normal distribution of either time or volume between the high and low of period X is worse than wrong because if we can say anthing about the market at all its that between price X and price Y, a normal distribtion of anything has nothing to do with reality. To me the only thing with can objectively say about the market is between X and Y, the probability distribution given enough samples will exhibit fat tails, and that distribution is random enough to not be quantifiable in any real way, but its not exactly a stochastic process either. If you try to get too solid about it then the stochastic element will get you, if you try to get too stochastic then the solid element will get you.

To me this points to an objective view of trading in that trading is damn hard, you probly want to do something other than what anyone says to do on message boards/literature/anything you can get second hand, liquidity becomes issue number 1 and how to "surf" waves of liquidity.