VPOC Shifts

[TheNegotiator 13]

Discussing things on the Day Trading the E-mini Futures, VPOC shifts are a topic that are bound to come up seeing as we do talk frequently about volume profile and market profile.

 

So, for Tom(roztom) and me and anyone else who'd like to join in, I thought I'd start a discussion thread devoted to the very topic of Volume Point Of Control shifts.

[roztom 10]

I copied this from the E-Mini thread to get things started..

 

 

 

We should discuss VPOC shifts... As you anticipated with the shift the market will either push off to continue the trend or rotate since there is a stalemate at that level so the market will move out of there one way or the other...

 

I watch Delta at VPOC's to try to see if selling is being absorbed as in this case at 68.00..

I do not have a definitive outlook since I do not typically initiate or exit a trade based on the VPOC shift... however, if the selling overwhealms the buying then we can expect the rotation we discussed for the market to advertise for more buyers with better prices down below possibly where there was low volume and competition for price otherwise it is being absorbed... and after some consolidation/coiling it will build energy for the next move with the trend...

 

One thing I look for: I watch 15m bars to see where there might be some stops building under the market and then how far is the next area.. In a strong market I expect the easy stops to get picked, especially if they cluster near some recent multiple 15m bars - 66.25 - 75.. as of 10:29cst If everything lines up I look to add in those areas..

 

At these times I just wear my helmet since it can do either...

[TheNegotiator 13]

A POC is in terms of market profile, the price during a specific time period being looked at which has the most TPOs(time price opportunities) against it. In short it's a proxy for either the price the market has spent the most time at or the traded the most volume at. The VPOC is where the market has traded the most volume at exactly. It is a suggestion of value.

 

When during a session the VPOC moves to a different price, it is significant. In some situations it can possibly mean that the market is "facilitating" trade in a particular direction, giving rise to further distribution in that direction. However, in other scenarios it may mean that a probe in that direction has encountered significant resistance and a reversal may be just around the corner.

 

Here is a chart example:-

 

 

 

So let's discuss.

[TheNegotiator 13]

It looks as though we might be on the "facilitating" side of things today. I suspect a probe up is needed to test that theory as that failure to conclusively take out the IBL shows strength.

[roztom 10]

Yes we are standing tall in the saddle today and we made a higher low against the 66.25 ..looking good to the upside...

 

I hope there are some other tools to see inside the VPOC Initially when it shifted I saw delta go up and price churned and moved up towards the HOD then the delta dropped and we rotated down.. from 68.50 to 66.25.

 

I wanted the 66.25 to add for a continuation but there is not enough range for me to add since current HOD is 68.75... If I don't have enough room at least several points I let it go... The good news on this is reading the market and understanding the auction process and WHY a market rotates and also what are the conditions that signal potential rotation (VPOC SHifts) and also what behavior to expect and where... for example the stop cluster under the market.. of course if the buyers are not still there and we do not continue to make higher lows on rotations then all bets are off...

 

This is where the financial rubber meets the road...

[TheNegotiator 13]

In this particular case we have today Tom, the reason I felt it could be a chance to reverse when it happened is the buyers looked strong at the time and then a flurry of selling came into the market when I thought it would move higher. It couldn't rotate any lower than the IBL though and with that context, I have changed my mind for now. Although again we are seeing a pennant style lower highs, higher lows at the moment. I want to see a probe higher at least though to gauge strength. The longer the market trades up here without breaking higher, the higher the chances of the late selloff being on are.

[TheNegotiator 13]

Context I think is used to determine probable cause of VPOC shifts, but what do they actually mean?

 

If the market is strong in one direction and trade is facilitated, I would say that value is perceived as having shifted too. Any counter trend trading is therefore an opportunity for traders to add/position themselves with the trend.

 

If the market has less conviction in the direction of a trend, traders late to enter the move are basically taking a position off others who are closing their positions/are placing reversal trades.

 

The E-mini thread illustrates it well actually. I had entered my trade initially for a reversal, you had hope to add to your directional move trade on a pullback. So it ends up being about the balance between the two groups.

 

At the moment there seems like there's nobody winning. This explains the "late selloff" phenomenon too. If day traders move the market up here, then there's a stalemate for a long time, there's likely to in this case we see today be more long positions than shorts which traders will want to close before the end of the day(and week in this case). Thus the market returns in the direction from where it came.

[khamore1 10]

Do you pay attention to the VWAP location in relation to the VPOC new location? If yes how does it affect your trading?

 

I appreciate your response

[roztom 10]

Do you pay attention to the VWAP location in relation to the VPOC new location? If yes how does it affect your trading?

 

I appreciate your response

 

While I personally keep an eye on the VWAP, I do not use it in my decision making process.

 

However, if the market is in a trend and it rotates to a DVPOC which is aligned with the VWAP, IMHO can be a strong support area to positon with the current direction of the market. After all, they both represent Volume..

 

I have observed this but do not have any statistical data to support it.. and I typically do not enter at the DVPOC unless it is a coincidence...

[joshdance 10]

I hope this does not turn into a "what happened today" or intraday market status thread, because I find the topic very interesting and is something I have been studying quite a bit recently.

 

While the VPOC shifted up, I think it's important to consider what is happening while the market trades in that area. Tom mentioned he watches delta. The second chart (from yesterday) here shows bid/ask delta volume. Consistent selling throughout the consolidation. The first chart shows TICK on top, and the blue line is its TWAP. Again, internally, the market is trading more at the bid.

 

Does this guarantee anything? No, but with a ramp up in buying, and then equivalent selling, with no further movement up in price (this is important I think), then it's a good indication of the potential for a move down. A glance at the prior day (Thursday) will show a similar pattern of selling after a strong move up, but the market was actually moving up, NOT consolidating sideways as it was today, and the delta to the downside on that day was not as pronounced as Friday. Fundamentally of course, Greek news provided the trigger to sell, but it seems the market, by way of what we see on the charts there, was already considering that as a possibility.

[joshdance 10]

As this chart of weekly profiles shows, we have consistently built higher value every week this year. This past week was the first week since last December that we have not had a higher VPOC than the last week. The last week's VPOC (1340) looks like a potential candidate for a potential yearly VPOC shift (the rightmost profile next to the vertical axis).

 

The idea I understand, from a read of TPO counts in Dalton's MoM, is that at some point, unless you have a shift in the POC, you are simply venturing into more "unfair" territory. If the market truly accepts a higher price, we will get a shift in the POC. Else, it will either continue to trend forever undirectionally, which markets cannot do, or it will tend to revert to the "fair" price. More likely in a strong market is that it will seek value away from the VPOC (in this chart, just above 1300), reach "unfair" territory, and then revert back and build value above the VPOC, and then a shift will occur. This is just one scenario that's possible as I see it.

[roztom 10]

Josh: Certianly agree not to give a blow by blow trade call-out. This thread was started on the Emini forum so we moved some of it over here as foundation..

[roztom 10]

When we discuss VPOC: VOlume Point of Control.. They give us a number of very important pieces of information...

 

Now just so you know there is always debate around what anything means in the market so I am going to give you what I believe is accurate. I do not claim to be an expert but I first learned about Market Profile in the early 1980's.. and in the more recent years Volume Profile which is an evolved Market Profile - adding Volume at Price vs regualr MP which is Time Based.

 

The element here of interest is the VPOC..when it is moving during the current market development it is called a DVPOC, Developing Volume Point of Control..

 

It represents the high volume area at that point in time and will shift as the high volume area moves with the market... it is dynamic.

 

What does it represent? High Volume and some would say where Buyers and Sellers perceive value equally - so price will churn there or return there as buyers and sellers exchange contracts...

 

I perceive it as price acceptance at that point in time at that price... Sellers are in balance with buyers... However, who is getting the upper hand? Can we see that with Delta? Will price move out of that area as one side is exhausted - like a tug of war...

 

Sometimes a DVPOC in an up market will shift up near the high end of the range..it can suggest several possibilities:

 

1. The sellers are absorbing the buying and buying is being shut off and the market cannot move higher at that time and will either rotate lower enticing more buyers or the buyers will be done and the sellers will dominate at that time = potential directional change/trend change or rotation counter to the current trend. Remember the market is an auction.. so if the VPOC shifts higher and the market cannot push up from there then you can interpret that buyers were met by sellers and then the market will move lower to seek new buyers who perceive an advantageous price(a sale) or the buyers have been exhausted...

 

OR

 

2. The buyers may overwhealm the sellers and after the selling is absorbed & move higher.

 

3. Other times if the market opens lower and there is large volume near the low and it lifts off from there and has range extebsion up then there was strong buying at that low point.

 

Why should you care? Volume at price is an alert of activity... The abilitiy to measure volume at price is signifigent and means so much more than volume on a bar...

 

After all what prices are important? Why is one price print more important market generated information than the other? Volume Profiles reveal a lot of information as to what is going on "inside" the bars. It is the only way I know of to see inside. While there is Market Delta Footprint Charts IMHO they are too complicated at least for me to integrate into my process.

 

The VPOC is a very important tool to read market generated information..hopefully we can explore it's uses here and help you see if it might be a good tool to integrate into your process.

 

Without going too far too fast..Volume over mutiple timeframes is important also... Right now we are basically discussing the interday timeframe but it is a generic concept... Daily, weekly, monthly, yearly, etc

 

Also. Naked (unclosed) VPOC's are targets.. we will probably get into that later after we can discuss the behavior of DVPOC's.

 

Thanks everyone for your participation...

 

Josh did mention a book by Dalton: Mind Over Markets.. it is a good basic read on the concepts but certainly not A-Z....

Edited March 10, 2012 by roztom

[joshdance 10]

Why should you care? Volume at price is an alert of activity... The abilitiy to measure volume at price is signifigent and means so much more than volume on a bar...

 

Means more? Well that is very subjective of course... Do you think it's different if the market trades 20k contracts over a 4 tick range in 10 minutes, versus 20k contracts over a 4 tick range in 1 minute? Volume at price only tells part of the picture in this scenario. Maybe the other part of the picture is not important to you, but it is part of the picture, the trio of volume, price, and time.

[roztom 10]

Means more? Well that is very subjective of course... Do you think it's different if the market trades 20k contracts over a 4 tick range in 10 minutes, versus 20k contracts over a 4 tick range in 1 minute? Volume at price only tells part of the picture in this scenario. Maybe the other part of the picture is not important to you, but it is part of the picture, the trio of volume, price, and time.

 

No debate: Volume at price tells me more, on a micro level, which is where I initiate trades, than number of contracts traded overall in hindsight. Since I cannot tell what the future volume will be in any timeframe the volume at price is one of the criteria that tells me what actually happened and what kind of activity might have taken place there..

 

This is how I identify locations for entry on countertrend rotations and they are very accurate..usually within several ES ticks. I do not believe that can be done on a volume bar since price is not the main component but time, range or volume - not price which is what we are discussing - volume and specific price points and tying it back to VPOC..- price & volume... IMHO..

Edited March 10, 2012 by roztom

[roztom 10]

Josh's comment above triggered something I want to share with you. I do not disagree with Josh's trifecta... I am focusing on VP and VPOC so as not to mix too many things..

 

I want to add that this discussion about volume at price is derivative of VPOC... One of the advantages I take away from VP is the understanding of what volume at specific price "might" mean.

 

Ex... I believe we expect high volume on a bar to give us signifigent information..it is relevant but what will help you more? Knowing that there was high volume over a given amount of time or range, etc. gives us information..how can we use it for trading decisions?

 

Consider this..when that high volume took place suppose there was one price in that period that had very little volume - why is that important? We expect high volume to be demand if the market is moving up - it is in the aggregate but in VP the low volume price is the price where demand overwhealmed supply and price didn't do much business there..it skipped higher...that low volume area is an area where demand was aggressive and if price should return to that area then those who perceived it as a good buy location earlier have a high probability of coming for it again... and supporting the market there..

 

That is one of the primary advantages of VP - volume at price and understanding the behavior that creates it...

 

Just like the VPOC specific behavior is taking place there..

[roztom 10]

I woke up at 5:30am thinking about another way to help you visualize this... If you look at several of the posted charts, and don't let them look too complex to you, remember when you saw your first bar or candle chart?) :doh:

 

There are 2 axis.

 

1. .Vertical price movement and volume on that movement... we usually look at that bar direction vertically and the volume bar will tell us what kind demand took place there.

 

2.In the VP the volume is horizontal..it shows volume at each price on the horizontal axis... this is the primary difference from the volume point of view and that information can allow you to see inside the bars as to what activity took place at each price as the market traverses the range and volume is transacted at the various prices. As the day develops you will see where there is high volume - the highest volume as the day is developing will be at the DVPOC and then you will see prices with very little volume..

 

The prices with low volume are the ones where there was competition or demand... price drove away from there quickly and when and where that happens is very important market generated information...

 

While MP and VP have their own language and there are a number of components to it.. I specifically focus primarily on this primary aspect of it. Many others use it differently. But for me it is essential information.. a good tool to have in the box...

 

When I see volume and price aligns with other market structure or indicators, it gives me high confidence to initiate or liquidate positions at these key levels...

 

Remember: It is the participants who create the volume in the market... the ones who move the market are not us but the big $.. The VP allows you to see their activity and where they thought price was important. The idea is to try to recognize their activity and to better align with it.. VP can help you do it.. and VPOC's High Volume and Low Volume Price areas give us very valuable, actionable information..

Edited March 11, 2012 by roztom

[Vincent Vega 10]

As this chart of weekly profiles shows, we have consistently built higher value every week this year. This past week was the first week since last December that we have not had a higher VPOC than the last week. The last week's VPOC (1340) looks like a potential candidate for a potential yearly VPOC shift (the rightmost profile next to the vertical axis).

 

The idea I understand, from a read of TPO counts in Dalton's MoM, is that at some point, unless you have a shift in the POC, you are simply venturing into more "unfair" territory. If the market truly accepts a higher price, we will get a shift in the POC. Else, it will either continue to trend forever undirectionally, which markets cannot do, or it will tend to revert to the "fair" price. More likely in a strong market is that it will seek value away from the VPOC (in this chart, just above 1300), reach "unfair" territory, and then revert back and build value above the VPOC, and then a shift will occur. This is just one scenario that's possible as I see it.

what kind of platform do you use?

[TheNegotiator 13]

The way things are is that different people trade with many different objectives. Some trades are taken by day traders looking to capitalize at the most opportune moment. Some are by funds looking to hedge massive long term positions. Hell, some are fat fingers! The point is that knowing who has done what exactly, where they have done it, what their book is like and what their specific objectives are is impossible. The data provides clues, but only to what traders who have been recently active may have done. There always comes the what happens next which can only ever be best guess before the event. That is of course if you are really able to give your best guess every single time. So never create a situation where you depend too much on the data to make a trading decision.

 

Having said this, traders of all kinds do look on a consistent basis for places where they can get in to or out of a trade with minimum risk and maximum potential for profit. So their behaviour is often very repeatable without being fixed. Can a VPOC shift ever in isolation even with say delta and give an accurate prediction of a market? I don't think so, no. Think about this. If you saw a massive delta spike when price was in the middle of a range, would it mean the same thing as if it happened after a period of trending prices? So the critical question to ask is what is the data saying in relation to what the market has done.

 

Josh I agree that this shouldn't become a daily trading thread as I feel the Day trading the e-mini futures thread is better placed to fulfill that need. However, the need for examples to illustrate a point is still there. I believe Friday was a pretty good example of using context in combination with observation. Earlier in the week, the market had dropped quite a bit and then strongly reversed. Yet coming into the closing stages of the week, although the move at the beginning of the day was good, ES had not yet taken out recent highs. Given that the reversal had looked fairly confident(and in spite of Greece), when the market developed below recent highs and then we had a VPOC shift, it said to me that at that point, if the market was failing to follow through on its strength, then a good number of people could be in positions they needed to exit if new buyers did not step in. That was probably what that last little look up was in aid of.

 

But really a VPOC shift is nothing more than a self-fulfilling prophesy. Think about it. It does tend to be something traders look for and so it can elicit a reaction when it happens. But it can be the difference of just 1 extra contract traded at that price which creates the shift. Plus, we are not taking into account the total volume of the distribution itself, just the VPOC or high volume price itself. So there could be an area that trades for a while and builds a lot of volume with the VPOC contained somewhere inside it. Then the market moves away and a tight volume distribution is formed but one price trades enough to form a new VPOC. Does that mean the same as comparing a VPOC shift when there are two similar total volume distributions?

 

Anyway, I think it would be very useful to explore specific items such as delta on historical VPOC shifts but combined with context. We always have to try to think freely and be open-minded to draw new and useful conclusions.

[roztom 10]

I believe Delta can be a key component to add to try to see what is happening.. The day we are specifically referencing when the VPOC shifted up towards the high end of the range I immediately noted a surge in Delta which I took as buying and price went up possibly a point and then the delta started dropping... and price dropped a bit but stayed in a range... before breaking down... Delta did give indications that the buyers were losing interest but reading it is not black & white.. Other indications (Chart/Congestion) suggested that the upmove could potentially be coming to an end... but our focus is on the VPOC... and volume in general...

 

I do watch Delta closely at key points.. I think we should keep an eye on what it does when VPOC shifts and see if it gives consistent clues..

[joshdance 10]

But it can be the difference of just 1 extra contract traded at that price which creates the shift. Plus, we are not taking into account the total volume of the distribution itself, just the VPOC or high volume price itself. So there could be an area that trades for a while and builds a lot of volume with the VPOC contained somewhere inside it. Then the market moves away and a tight volume distribution is formed but one price trades enough to form a new VPOC. Does that mean the same as comparing a VPOC shift when there are two similar total volume distributions?

 

This is a very good paragraph. The VPOC is simply the mode in the distribution of volume weighted prices. As such, it is not a continuous statistic, as is the mean, for example (the VWAP). A shift in the mode must be taken into the context of the distribution, as N well points out.

[chad92109 10]

might find this webinar on VPOC shifts helpful.

 

[ame=http://www.youtube.com/watch?v=IPyP18FKvds&list=UULdZZPcnxZLB_G7bzG8ZM7A&index=6&feature=plcp]VPOC Shifts - What do they mean How do you trade them - YouTube[/ame]

[trader001 10]

I agree that MP is an invaluable tools that gives another dimension to explain the market, but my question is still there: how can I use it as a tool in real time. Yes, high volume traded at a particular price signals price acceptance among buyers and sellers, yet where the market is heading next? Since there could be multiple explanations on why MP presented itself in certain way, this leads to conclusions for two opposite directions. Worse, I also find it difficult to assign probabilities with a consistent basis on either scenarios? If that's the case, how better can it be compared to just flipping a coin? Instead of trying to capturing everything in delta, is there a better way to quantify the relationship between DVPOC with its prior path?

[roztom 10]

I agree that MP is an invaluable tools that gives another dimension to explain the market, but my question is still there: how can I use it as a tool in real time. Yes, high volume traded at a particular price signals price acceptance among buyers and sellers, yet where the market is heading next? Since there could be multiple explanations on why MP presented itself in certain way, this leads to conclusions for two opposite directions. Worse, I also find it difficult to assign probabilities with a consistent basis on either scenarios? If that's the case, how better can it be compared to just flipping a coin? Instead of trying to capturing everything in delta, is there a better way to quantify the relationship between DVPOC with its prior path?

 

I've been working with MP/VP for years..initially I abandoned it..but at least for me when you use a Volume Profile you can see volume at each price and when there is low volume and price does not stay there long it means there was competition at that price... If you are interested in seeing where a market will rotate to - on any timeframe then you watch that and align your entry or exit at those levels..that is just one use for it..

 

I do not use it alone but I also use Delta at key levels along with other price based lagging indicators..also when you use long-term composite profiles it gives you a whole different view of the market and how it functions - Auction Theory...

 

I have integrated into my tool box and I wouldn't trade without it but it is not a system or anything like that..it specifically adds the ability to read market generated information from a different perspective.

 

What happens at a VPOC shoft is it is typically telling you that at the moment there is agreement on price... it can mean different things at different times... sometimes it will indicate that the market has hit a wall and someone will throw the towel in, other times that one side is overwhealing the other..sometimes it just means one side is tired and the market will rotate... Where I find most value with VPOC's is old VPOC's. Naked VPOC's are areas that the market will come back and visit..they act like magnets... there are varibales to it but it is a tool to be taken in context with others... IMHO.

 

In addition, like all tools, it is really what parts of it resonate with you and align with your

psycology and tool box..

Edited April 5, 2012 by roztom

[joshdance 10]

yet where the market is heading next?

 

A profile does not tell you this. In fact, nothing tells you this. A profile shows prior activity, much in the same way that price bars show prior support and resistance. It does nothing more than provide a structure. You must use the context of the market, IMO, to best determine what is more likely to happen next. Each trader will use different tools to accomplish this. The thing is, there are only so many market-generated tools you can use, which is a good thing.

 

I also find it difficult to assign probabilities with a consistent basis on either scenarios?

...

is there a better way to quantify the relationship between DVPOC with its prior path?

 

Perhaps, but understand that the mode of a distribution is not a continuous variable such as the mean. This alone makes probabilistic analysis based on it suspect at best. Better to understand the concept of acceptance, versus the "law" of acceptance as "decreed" by a shift in the mode. You don't need a vpoc shift to demonstrate acceptance. Just my