Some Questions About Using MP for Intraday on ES

[robster970 10]

Hi folks,

 

Just for some context even though this is my first post on this forum, I've been trading for over 3 years with some success on swing trading ES but I have historically been mediocre intraday.

 

That is, until I started looking at MP and the basic auction theory that underpins it.

 

So I'm having some short-term success right now trading intraday with most of these trades coming from one of two places:

 

1) Completion of the OS when the day in not an OD or OTD and where the swing is quite long-lived. Basically I can see the buyers/sellers coming into the market quite nicely when the OS is mature and done it's job of advertising for buyers/sellers.

 

2) Mean Reversion trades typically after the IB has formed but most notably in the first period after IB when the first test of an extreme is occurring. I usually run these to the VPOC/POC but if there appears to be a lot of momentum coming through on T&S then I'll try and run it to the other extreme. This is rare because I tend to exit at the first whiff of resistance once past the POC/VPOC.

 

As I become more attuned to MP, I'll probably see more opportunities reveal themselves but right now, I'm happy with these two areas.

 

My questions are associated with changing market conditions because right now, VIX is at 20, ES is quietly trending upwards but under mediocre volumes.

 

a) Does and increase in VIX typically result in wider IB's as well is implicit higher noise levels to compensate for when placing stops? I ask because this would mean trading fewer contracts but expecting greater movement especially if the IB is wider and reversion to POC/VPOC is a greater distance (basically wider stop but bigger target)

 

b) Do trending markets typically display greater OD/OTD/ORR opening types than bracketed markets because OTF participation is more overt in the direction of the trend?

 

c) Do MR strategies tend to work better in bracketed markets because OTF buyers and sellers are generally agreeing on value?

 

Any experiences of a greater variety of market states appreciated, especially how others alter trade mgmt under different conditions.

[robster970 10]

Was the opening post so dull that it made people's eyes bleed and as punishment, nobody has bothered answering?

[joshdance 10]

Was the opening post so dull that it made people's eyes bleed and as punishment, nobody has bothered answering?

 

Maybe it's because your post asks many questions, all of which really require statistical back testing. Those are not the type of general questions that are answered easily. Just my

[TheDude 10]

Hi folks,

 

Just for some context even though this is my first post on this forum, I've been trading for over 3 years with some success on swing trading ES but I have historically been mediocre intraday.

 

That is, until I started looking at MP and the basic auction theory that underpins it.

 

So I'm having some short-term success right now trading intraday with most of these trades coming from one of two places:

 

1) Completion of the OS when the day in not an OD or OTD and where the swing is quite long-lived. Basically I can see the buyers/sellers coming into the market quite nicely when the OS is mature and done it's job of advertising for buyers/sellers.

 

2) Mean Reversion trades typically after the IB has formed but most notably in the first period after IB when the first test of an extreme is occurring. I usually run these to the VPOC/POC but if there appears to be a lot of momentum coming through on T&S then I'll try and run it to the other extreme. This is rare because I tend to exit at the first whiff of resistance once past the POC/VPOC.

 

As I become more attuned to MP, I'll probably see more opportunities reveal themselves but right now, I'm happy with these two areas.

 

My questions are associated with changing market conditions because right now, VIX is at 20, ES is quietly trending upwards but under mediocre volumes.

 

a) Does and increase in VIX typically result in wider IB's as well is implicit higher noise levels to compensate for when placing stops? I ask because this would mean trading fewer contracts but expecting greater movement especially if the IB is wider and reversion to POC/VPOC is a greater distance (basically wider stop but bigger target)

 

b) Do trending markets typically display greater OD/OTD/ORR opening types than bracketed markets because OTF participation is more overt in the direction of the trend?

 

c) Do MR strategies tend to work better in bracketed markets because OTF buyers and sellers are generally agreeing on value?

 

Any experiences of a greater variety of market states appreciated, especially how others alter trade mgmt under different conditions.

 

depends. sometimes yes, some times no - like everything else in this gig.

 

Take today - OTD coming out of a ST bracket. thats a fairly high probability it will barry o to the BO. Sometimes you get the BO in the afternoon , sometimes on the open.

 

trade 'em!

[joshdance 10]

depends. sometimes yes, some times no - like everything else in this gig.

 

Take today - OTD coming out of a ST bracket. thats a fairly high probability it will barry o to the BO. Sometimes you get the BO in the afternoon , sometimes on the open.

 

trade 'em!

 

ST bracket?

BO -> breakout?

 

Too many abbreviations for me!

[BlueHorseshoe 10]

Hi folks,

c) Do MR strategies tend to work better in bracketed markets because OTF buyers and sellers are generally agreeing on value?

 

I am certainly no expert on Market Profile, but I can tell you that the ES (or other S&P500 tracking instruments such as SPY) are just about the best place to employ mean reversion strategies - if you can't make them work here then you're not likely to make them work elsewhere!

 

Apart from the ES, other (large) stock indices tend to exhibit a strong tendency towards mean reversion, so the Nikkei, FTSE, and Dax would all be woth examining.

 

I hope that's helpful, and sorry I can't answer your other MP questions!

[TheDude 10]

ST bracket?

BO -> breakout?

 

Too many abbreviations for me!

 

 

LOL

OMG!

 

Short Term - you got the other one. shouldnt really post when im in the market

[Tams 20]

I am certainly no expert on Market Profile, but I can tell you that the ES (or other S&P500 tracking instruments such as SPY) are just about the best place to employ mean reversion strategies - if you can't make them work here then you're not likely to make them work elsewhere!

 

Apart from the ES, other (large) stock indices tend to exhibit a strong tendency towards mean reversion, so the Nikkei, FTSE, and Dax would all be woth examining.

 

I hope that's helpful, and sorry I can't answer your other MP questions!

 

can you expand on your mean reversion strategies? it sounds very interesting.

[joshdance 10]

LOL

OMG!

 

Short Term - you got the other one. shouldnt really post when im in the market

 

You mean the 87 to 89 bracket?

[BlueHorseshoe 10]

can you expand on your mean reversion strategies? it sounds very interesting.

 

Hi Tams,

 

I wasn't really remarking about any particular strategy, but the statistical tendency for the S&P500 to revert to its mean. An obvious rationale for this would be the fact that its such a large index - movement in any one single component stock has a fairly negligble effect upon the index, which is seldom more than an aggregate of masses of conflicting market information. On average, the index makes very little new headway in any timeframe (compared to other instruments).

 

I feel that I should probably be supporting this with some hard statistics, and I don't have anything to hand! One place that backs up similar assertions with figures is the now defunct Brett Steenbarger 'Traderfeed' blog (I'm not sure I can give out a URL on this forum, but a google search for 'Steenbarger Mean Reversion' pulls it up as the top entry).

 

One simple way to exploit this tendency for mean reversion in the ES in any timeframe, I guess, would be to take the other side of any breakout. This is not a new idea though - in fact it's a similar concept to the 'Turtle Soup' strategy given in the 'Street Smarts' book. An issue for many traders with this type of approach though, is that it almost requires a greater than 1:1 ratio of risk to reward - we tend to be told that "large R multiples" (that old Van Tharp term) are the way to go, and we should "cut losses short". In terms of mean reversion trading this would be poor advice.

 

Before I'm accused of hi-jacking a thread that is meant to be about Market Profile, I'll leave it there I think!

[robster970 10]

Guys - thanks for the answers so far.

 

@Joshdance - I can see what you mean re: backtesting but tbh, I was looking for feedback from discretionary intraday traders. Personally I have found that with both my swing and now maturing intraday, being able to read what the market is doing 'now' and respond to it accordingly is a far more effective way of trading for me personally.

 

@TheDude - I stayed out yesterday because it just looked like it was going up. As both my 'methods' rely upon identifying weakness creeping in and then taking an entry, you can see why I sat on the sidelines. When I've tried to trade a 1-way market, I find it difficult to get a good entry. The only place that looks vaguely sensible is when it is consolidating at a level, get in there and bail if I've got it wrong really.

 

@BlueHorseshoe - ES reverting to mean - yes, I couldn't agree more. I do find it easier to take trades before the day has any well defined structure to it strangely, mainly because the initial moves are more about advertising for counter-parties to trade with when it doesn't open as a 2-way auction. When the counter-parties arrive, it's pretty obvious (well to me at least). Later on in the day when there is structure, I am always looking for hints of OTF activity in the value area that might make it NOT mean revert and at the moment, I find this more difficult.

 

Guys - don't feel precious about going off topic a bit on the thread - I'm not that anally retentive and any interesting information regarding discretionary intraday, MP and ES is valuable to me.

[robster970 10]

One simple way to exploit this tendency for mean reversion in the ES in any timeframe, I guess, would be to take the other side of any breakout. This is not a new idea though - in fact it's a similar concept to the 'Turtle Soup' strategy given in the 'Street Smarts' book. An issue for many traders with this type of approach though, is that it almost requires a greater than 1:1 ratio of risk to reward - we tend to be told that "large R multiples" (that old Van Tharp term) are the way to go, and we should "cut losses short". In terms of mean reversion trading this would be poor advice.

 

In my experience (which to be fair is quite limited on intraday), getting filled 3-4 ticks from the high/low is entirely possible. The mean is frequently > 4 ticks away from your entry so R:R > 1:1 is pretty much the norm. Also watching T&S is a good filter for seeing whether it is Mean Reverting or not which should increase your win%.

[BlueHorseshoe 10]

 

Later on in the day when there is structure, I am always looking for hints of OTF activity in the value area that might make it NOT mean revert

 

I definitely agree with this. In practice, pretty much any intraday breakout strategy that I have seen that performs remotely well in the ES is one that focusses on the latter half of the cash session. The flipside of this is the fact that within the first hour or so of trading, mean reversion strategies can be profitable with absolutely no directional bias - ie fading any kind of significant movement off the open - such is the structureless price behaviour of the open.

[BlueHorseshoe 10]

In my experience (which to be fair is quite limited on intraday), getting filled 3-4 ticks from the high/low is entirely possible. The mean is frequently > 4 ticks away from your entry so R:R > 1:1 is pretty much the norm. Also watching T&S is a good filter for seeing whether it is Mean Reverting or not which should increase your win%.

 

If you can do this then you're a step ahead of me! My tape-reading skills are pretty non existent, so I pretty much ignore T&S. Obviously I have many times been filled 3-4 ticks from the high/low, and even at it, but this is far from the norm - to be able to do so with any regularity would certainly improve my performance.

 

One of the issues I've found with T&S is that most information about how to interpret it is based around stocks. Can you recommend any good reasources on tape reading for futures? I've asked this question in other forums and basically been told - "you need to put in the screen time", which I don't consider terribly helpful!

 

Thanks.

[robster970 10]

I definitely agree with this. In practice, pretty much any intraday breakout strategy that I have seen that performs remotely well in the ES is one that focusses on the latter half of the cash session.

 

I'll keep an eye out for that - nice tip.

 

One of the issues I've found with T&S is that most information about how to interpret it is based around stocks. Can you recommend any good reasources on tape reading for futures? I've asked this question in other forums and basically been told - "you need to put in the screen time", which I don't consider terribly helpful

 

I've never found anything out there and tbh, I don't think anything would be a substitute for screen time. All my experience is derived from sitting there watching the DOM and T&S. I wish I had a better answer for you

[Phil-n-Texas 10]

interesting topic but having a hard time following all the acronym jargon... perhaps a legend would help? I've been a student of MP for quite awhile and can't get it right... OTF, OTD, etc.???

 

that aside, i mainly look at MP in multiple timeframes and key in on confluence areas such as fibonacci levels, trend lines, and pivots for "reaction areas".

 

as for Time and Sales, using ES as an example, i will have 2 or 3 T&S windows open with different filters... one with 3 or less lots, the next with 4 to 39 lots, and the the last with 40 and up lots.... too me these filters help parse the activity between retail and commercial traders... Mainly I'll watch the the activity in the smaller lot sizes and then if there are some prints on the > 40 window that signals that the larger players are getting on board... especially if they start showing up in triple digits.... same with exits... if i see a large print against my trade and i'm in the money, the big dogs are leaving the party so i'll go ahead and exit or tighten stops.

 

just my

[robster970 10]

Sorry guys about the acronyms. I have just assumed (wrongly) that people know what I'm banging on about.

 

OD - Open-Drive

OTD - Open-Test-Drive

ORR - Open-Rejection-Reverse

 

These 3 are all descriptions of how a day can open.

 

OTF - Other timeframe - a participant that's not interested in intraday and typically wants move the price away from it's current value.

 

T&S - Time and Sales - window of orders that have been filled, their size and their price.

DOM - Depth of Market or Ladder - order book above below the current bid and above the current ask

[TheDude 10]

Guys - thanks for the answers so far.

 

 

 

@TheDude - I stayed out yesterday because it just looked like it was going up. As both my 'methods' rely upon identifying weakness creeping in and then taking an entry, you can see why I sat on the sidelines. When I've tried to trade a 1-way market, I find it difficult to get a good entry. The only place that looks vaguely sensible is when it is consolidating at a level, get in there and bail if I've got it wrong really.

 

 

well i guess you're getting ready to pile in now then! recently, the slowly climbing price on vapour volume is a sure sign than the price expansion isnt attracting new business, so weve got to auction down soon. thats the easy/obvious part. the difficulty of course is the when. many will wait for confirmation of course, however the risk/reward will be unfavourable then as opportunity becomes more symmetrical. i guess this will be price reverting to the mean?

 

as im sure you know, this, when it happens will be a 1 way market. every participant will be selling. in such markets i face the same issue as you - when to get in. waiting for the consolidation often means giving up some of the move. we're advised to just get on board, but i seem to crave a logical point where i can say im wrong if the market comes back. using a dollar or point stop seems silly.

 

an example of how good trading means doing something very unintuitive.

[TheDude 10]

interesting topic but having a hard time following all the acronym jargon... perhaps a legend would help? I've been a student of MP for quite awhile and can't get it right... OTF, OTD, etc.???

 

that aside, i mainly look at MP in multiple timeframes and key in on confluence areas such as fibonacci levels, trend lines, and pivots for "reaction areas".

 

as for Time and Sales, using ES as an example, i will have 2 or 3 T&S windows open with different filters... one with 3 or less lots, the next with 4 to 39 lots, and the the last with 40 and up lots.... too me these filters help parse the activity between retail and commercial traders... Mainly I'll watch the the activity in the smaller lot sizes and then if there are some prints on the > 40 window that signals that the larger players are getting on board... especially if they start showing up in triple digits.... same with exits... if i see a large print against my trade and i'm in the money, the big dogs are leaving the party so i'll go ahead and exit or tighten stops.

 

just my

 

so what do you do when a local trades a 500 lot through an iceberg trading 1-2 lots? (one reason t&s is so much harder, and imo, one is better off looking at aggregate volume. feel free to flame me....

 

 

BYW, OTD - open test drive OTF - other time frame (ie long(er) tf than that traded)

[robster970 10]

...... i seem to crave a logical point where i can say im wrong if the market comes back. using a dollar or point stop seems silly.

 

Me too. I just don't seem to have it in me to just get on the bus and not think about where to bail if it goes wrong.

 

Take last Wednesday - OTD day, opened 88.75, tested down at 86.50 and then bang, it was off. By the time it started to consolidate in Q period (N&P are my IB) at the top of the IB (Initial Balance), you've missed 65% of the move or about 10pts. Where's your 'wrong' then? To cater for a 10pt stop I'd seriously have to scale back the number of contracts I'm trading and then I've got a cr@p r:r for a trade that travelled another 8pts in 7hrs.

 

Until I figure out a way of identifying OD and OTD scenarios (opening out of range is obviously no guarantee) I think I am destined to sit it out.

 

Maybe it's just more screen time that I need.

 

Incidentally, I'm stunned this move up on ES has lasted so long. I'm expecting one last attempt at pushing up and then I might get on the bus down. Looking like the start this week in my opinion. Then again, I am frequently wrong. :haha:

[joshdance 10]

Take last Wednesday - OTD day, opened 88.75, tested down at 86.50 and then bang, it was off. By the time it started to consolidate in Q period (N&P are my IB) at the top of the IB (Initial Balance), you've missed 65% of the move or about 10pts. Where's your 'wrong' then? To cater for a 10pt stop I'd seriously have to scale back the number of contracts I'm trading and then I've got a cr@p r:r for a trade that travelled another 8pts in 7hrs.

 

After it moved up after the open and started to level off, I got a good indication and got long at 95.75 (at 11:20am EST). It tried but could not get back above the prior high at 97.75, so after a triple bottoming at 95.50 it seemed it would move lower, so I moved stop to BE and was out at 11:34am. No need for a 10 point stop when it's just not going. Then it broke another 1.25, and I got another indication to buy and was long at 95.00 (at 11:53am). Stop was 1.5 points, for reasons that should be pretty clear from the chart. This time it did go, and I closed the trade way early, but still had a profit.

 

My point is that there's no need for such a wide stop. Stop placement is still something I really struggle with, but the most frustrating thing to me is to have a 3 point stop (wide for me), watch it get hit, and then go my direction. So most of my stops are 1.5 points or less. There's nothing wrong with trying 3 times for a trade, getting out with -1 on each of the first two, and then hitting a nice +4 or +5 on the last try, if you can do it. Small losses are important psychologically too; when I get down 3 points on a single trade, on these days when the range has been 10 points, it makes it difficult because you could now capture 50% of the day's range and still only have +2. Lots of pressure for me.

 

More important is, "am I on the right side of the market?" I shorted last week and gave the thing 3 points of room, and it just kept crawling and crawling against me and finally got me. There's just no reason to do this, and I wanted to be right more than I wanted to have a good trade, because I knew it would get me, but I just hoped it wouldn't. Not a smart way to trade. On a day where volatility is high and the range is 20-30 points, a 3 point stop may be just fine, but in 8-10 point ranges, if you need 3 points of room, the location or timing of the trade is just off IMO. And if you need a 10 point stop in anything except a swing trade where you're targeting 30 or more points, something's very wrong IMO.