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Market Profile Question

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  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.

 

While TPOs were used by Steidlmayer as a proxy for a volume histogram, this doesn't rule out the possibility that the TPO histogram is actually more effective than the volume histogram after all is said and done. Maybe it was better all along. At this point, it's hard to prove since one could put forth a "self fulfilling prophecy" argument concerning TPOs, but really, how large of a percentage of the market are Market Profile users?

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  sdoma said:
While TPOs were used by Steidlmayer as a proxy for a volume histogram, this doesn't rule out the possibility that the TPO histogram is actually more effective than the volume histogram after all is said and done. Maybe it was better all along. At this point, it's hard to prove since one could put forth a "self fulfilling prophecy" argument concerning TPOs, but really, how large of a percentage of the market are Market Profile users?

 

Very minimal from what I have seen. Usually within an entire team of traders I would be lucky to spot one trader using MP charts. Those that do... tend to live by it.

 

Only 1 trading book has touched market profile in Japan so far. I have the author myself and interestingly enough he is not a trader.

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On some instruments you can clearly see orders come in at places like VAH & VAL just as you often can at say yesterdays pivot point or mid point or close or H or L etc. etc.

 

Sdoma I could certainly buy into the idea that time is an as important component i guess its like the time based bar/candle chart versus constant volume chart debate. Just a different way of sampling data so no real 'secret sauce".

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  BlowFish said:
Sdoma I could certainly buy into the idea that time is an as important component i guess its like the time based bar/candle chart versus constant volume chart debate.

 

Of course time is important. Markets are made up of people, and people live their lives by time. When I conceptualize markets with MP, one thing that strikes me about TPOs as opposed to pure volume histograms is that, when you see prices consolidating in an area, is that less significant because you don't have increasing volumes?

 

I would say no. The very fact that price is spending an extended period of time in a price zone tells me that there is a perception of value there - otherwise, the prices would move somewhere else to seek true value. When the market participants perceive a change in value, you will see volumes rise as participation increases due to more time frames jumping in.

 

  BlowFish said:
Just a different way of sampling data so no real 'secret sauce".

 

Of course not. There is no "secret sauce." Generally you can summarize the theoretical underpinnings of most methods and systems in a few sentences, and they all come back to the same stuff.

 

What I like about Market Profile is that in order to use it you have to gain some sort of market understanding. This will take you further than the "if A, then B" that most systems impart. "If the 9EMA crosses the 18EMA to the upside, go long." That kind of thing.

Edited by sdoma

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  sdoma said:

 

When I conceptualize markets with MP, one thing that strikes me about TPOs as opposed to pure volume histograms is that, when you see prices consolidating in an area, is that less significant because you don't have increasing volumes?

 

I would say no. The very fact that price is spending an extended period of time in a price zone tells me that there is a perception of value there - otherwise, the prices would move somewhere else to seek true value.

 

Ahh but the chances are if price consolidates in an area the volume profile will grow in that area also. Seems to me most times the two go hand in hand anyway. Having said that neither are tools I use day in day out.

 

What is perhaps surprising (or not) is the edge of the profile. At price extremes (where you might expect single prints as price is quickly rejected) you often see large climactic volume on a regular chart. Despite this you still get tails on a volume profile. In short there seems to be a pretty strong correlation between time spent at a level and the volume transacted at that price. Again rather stating the obvious but what the heck.

 

Seems an argument could be advanced that value has more likely been accepted at a price if trades roll along the tape rather than sitting there with few trades. That's not one for me though.

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  BlowFish said:
On some instruments you can clearly see orders come in at places like VAH & VAL just as you often can at say yesterdays pivot point or mid point or close or H or L etc. etc.

 

BlowFish, have you read Evidence Based Techincal Analysis yet? If you have not you should get it ASAP. All it really does is put forth the case for starting from a mindset that everything we talk about does not work and its our job to prove to ourselves that it does. If you think about it, this is the exact opposite of what anyone who buys a trading book does. Someone buys a trading book on fib trading because they assume it works, but that obviously leads to delusions and confirmation bias.

"price hit this golden ratio today so obviously this fib stuff has utility"..

I've come to the point that I believe a good trader could actually be profitable trading off a random level generator...that setups are simply ways to filter out trades so that a good trader can focus on price action..

As far as market profile, I do believe there is something to low volume zones..if no one wanted to transact at a level 5 minutes ago what has changed that they want to transact now?

I do not believe though our market profile tools do an optimal job of quantifying the difference between a low volume breakout and a low volume fade...the VAL/VAH is just nonsense to me...I would bet they are not better than random. They are no different than pivots, pivots have nothing to do with reality..the fact some people can trade them is simply because those traders are damn good at reading order flow and price action and use pivots to filter out what not to look at..

Dalton isn't Jim Simmons, and Jim Simmons is never going to write a book.

To me the more interesting question is how do we build a better mouse trap with market profile?

One thing I can think of is that the bid/ask and book have to act differently when retracing near a low volume zone than when price established that point as a zone to start with. What that looks like is a very interesting question..

How to do that without moving to neoticker? I don't think it can be realistically done..

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Thanks for reminding me about the book. O'Hara is still on the list too.

 

Did you know that Ninjatrader now will allow you to have order book changes trigger events in scripts? I haven't messed with it yet. Too lazy to write code at the moment.

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Just some thoughts of my introduction to Mkt Profile (about 12 years ago) and later on reflections of that time after having learned some 'traditional' tenets of market return.

 

The first time I sat on an inst'l trading desk that was trading various strategies in Treasury futures using Market Profile & CQG.

 

So I took off reading all the published literature and particpated in various complex designs for automatic recognition of partcular patterns.

 

Later on after completing that internship, I went on to learn about the differences in distributional properties of Returns vs the normal distribution.

 

So I guess my thoughts to all of you is:

If returns are non-normal skewed with both platy & lepto- kurtotic properties & which sometimes exhibit multi-modality:

 

How does one trade using the Mkt Profile under these assumptions?

 

Also has anyone done any distributional calculations on the raw tick data ( or other levles of granularity) in order to differentiate the distributional properties of the data set which they have identified as a partcular trade entry or exit point?

 

I would be interested in heairng how the distributional properties differ from normality in situations when trade oportunites have been identifiied.

 

succesful trades vs times when trades do not work out.

 

Pls dont get me wrong, I think there is great information vlaue in hte Mkt Profile properties, however I wanted to try to think about how everyone views the appropriate methods and to determine relative success of the concept itself rather than anyone's particular trading success.

best regards.

Davla

 

fat tailed andi just thought

I do not mean to start any fires

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  davla said:
So I guess my thoughts to all of you is:

If returns are non-normal skewed with both platy & lepto- kurtotic properties & which sometimes exhibit multi-modality:

 

How does one trade using the Mkt Profile under these assumptions?

 

So, translated into plain English, you are asking "how you trade market profile when there's no standard shape?" This is actually relatively easy.

 

Market profile is a tool used to display whatever market structure exists at the time. You don't have to expect a distribution to look a certain way to use it. All the market profile charts are is a tool that allows you to observe very quickly and objectively the "bigger picture." It allows you to determine relevance.

 

The main questions I use MP to answer are this:

 

1. What is the market doing?

 

2. How well is it accomplishing this?

 

3. Under what conditions will the current market structure have changed?

 

4. If the market structure changes in X way, what can one reasonably expect? If it stays the same, what can one reasonably expect?

 

To me, the third and fourth questions are the trickiest. They require you to integrate the information gained from one and two as well as construct various probability scenarios in the hope that, if one begins to occur, you can "catch on" and act appropriately to capitalize.

 

I'll put some examples in my next post.

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MP was designed by a bondtrader standing in the pit who already knew how to read price action and knew what large orders were flowing in and out of the crowd,for example,morgan stanley has been buying for 3 weeks,mp showed him a point or several where the rally might stall if that point didnt hold u colud buy and expect to cover on the next point.. Its a simple and very useful tool when its not overanalyzed,it just shows u where the most buyers and sellers converge and where there are the fewest,the gaps. Market momentum will be present several times thruout the day and the mp shows you where its likely to stall or it will at least get to that point,sometimes thats 20 points ,sometimes 2,but if u use it in a simple way its a great scalping tool.

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  BlowFish said:

Did you know that Ninjatrader now will allow you to have order book changes trigger events in scripts? I haven't messed with it yet. Too lazy to write code at the moment.

 

The problem with ninja is it can be real time event driven, but it can't be histrorically event driven...that should change in NT7.

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  darthtrader2.0 said:
The problem with ninja is it can be real time event driven, but it can't be histrorically event driven...that should change in NT7.

 

Indeed, looking forward to that an inexpensive (free) alternative to NeoTicker. Mind you I fond both a bit fussy to program. I tried to get the guys at TSSuport (producer of MultiCharts) to grasp the concept....waste of time really they just didn't get it.

 

Davla you might be intrested in JPerls trading with market statistics threads in this section.

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Dear all,

 

I wonder how can I construct the long term MP chart by using the EOD data (i.e. Daily OHLC) insteads of using the 30 minutes intraday data to construct the day timeframe MP chart?:crap:

 

How can I determine the Open with EOD Daily data? First of each month? :doh:

Anyone here can guide me the way to this long term MP chart? TQ

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It depends on your software... I use IRT and make weekly, monthly,

and even year to date profiles...These can be constructed with EOD

data I am pretty sure. You will not get full tick data, but it should print all the TPO's

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  koifan said:
It depends on your software... I use IRT and make weekly, monthly,

and even year to date profiles...These can be constructed with EOD

data I am pretty sure. You will not get full tick data, but it should print all the TPO's

 

 

oh thank....i know....we can construct the EOD data for the long term MP with the software but the problem is : I am constructing my MP chart with MS Excel....I need to know the right way to get long term chart, such as how to determine the opening/closing price for a particular month......:doh:

is the opening/closing price of the 1st tday of the month opening/closing price for the month? Is it sound logic compare with the day timeframe?:doh:

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the open for a month is the first print on the first day of the month. You can for example check this by going to the exchange website . A monthly chart is constructed by taking all the daily charts and taking the open on the first day the close on the last day and the maximum and minimum amplitude in between. same principle for weekly

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I would suggest that you also search Traders Lab threads for further answers to your question but briefly construct the Profile into segments of 240 minutes . establish the 3 time zones of the world, Asia, London, US and split at those time periods EG London starts at 2am ET although there are some who would say earlier and the US starts at 8am ET although again some would say 8:20am

Know that the Tokio fix occurs at 8:55pm ET and the London/US fix at 11am ET unless it is a quarter end when the fix occurs much earlier in the day

 

So now you have the outline your next question will be what about volume and the answer to that is Tic volume in FX is a better proxy. Yes one can use the futures market as a microcosm but in reality the number of times you see the offer lifted in what appears to be size and then no trade occur for 2 minutes followed by a move of several tics/pips lower will show you that volume in FX is probably irrelevant to us mere mortals who are not privy to the flows

 

Obiously the auction does not always follow 240 minutes and as in every market it behoves you to drill down to the timeframe that the market is auctioning and this may very well be a 1 minute at report times. A word about which: EU reports are followed avidly by US traders but in reality very few of them are relevant to EU traders where US reports hold much more sway. The reason is that although fundamental analysis is employed in FX the dominant order flow is much more important

 

Lastly the FX market can at times be very illiquid and whats referred to as a stop hunt occurs in the path of least resistance. These frequently occur in the Asian timezone

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  Michael Deys said:
Market profile for forex market, does it work?

 

Regards,

Michael

 

Mike,

 

You can profile currencies. It's the best way to get an idea of where the volume was traded in the currency.

 

Can you make money with it on currencies? Nothing makes money for you.

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There is certainly benefit is doing a volume analysis on a forex future. I see no reason why it shouldnt represent high/low volume areas as per normal concepts. Not sure if the TPOs are of benefit though.

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Hi alleyb, flyingdutchmen, MightyMouse, jimbo320

 

Sorry I was on vacation. Just got back. Anyway, thanks a lot for your kind information and opinion on this! I will work on it. Yeah! At least I see some hopes!

 

Thanks again to you all!

 

Kind regards,

Michael

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