Why is MP Graphic Based on Time?

[mikew 10]

Forgive me, I'm new and just reading through Mind Over Markets now.

 

I don't understand why you would want to construct a market profile graphic by using time (half hour periods) as the unit to determine where to place the letters. How does time hold any value? It seems that the bell curve is determined by the DURATION of time spent at a certain price. But why is that even relevant? It could have spent the most time at a certain price, but maybe not many contracts had traded there. It seems like its much more useful to use volume of price to construct the graphic instead of time.

 

Sort of like what dbphoenix was showing here:

http://www.traderslaboratory.com/forums/blogs/dbphoenix/537-getting-down-cases.html

 

Can someone clarify for me?

[MightyMouse 12]

Put your mind at ease. There is no good reason for using 30 minute bars for the tpo's and there is also no good reason for using volume.

 

It might help a bit to not think of the distribution from an academic perspective.

[TheNegotiator 13]

It's because when Market profile was first devised, volume was not available to traders in real-time. It was reported every 30mins (I am not absolutely 100% on this so if someone knows with absolute certainty that would be good!). The profile was an estimation of volume.

 

I'd point out that whilst a volume profile is more accurate in many cases, time is an important variable for many participants. If the market spends lots or little time in an area, that has impact just as the amount of volume traded there does. Also, the fact is that a volume profile does not show when a price has been touched and on how many separate occasions. This is all useful information.

 

If you want to use MP with or over VP, then you can choose any length of time per TPO but it is probably best to use 30mins at least to begin with. Much of MoM is not MP dependent and is about auctions so it's still very useful imho.

[MightyMouse 12]

It's because when Market profile was first devised, volume was not available to traders in real-time. It was reported every 30mins (I am not absolutely 100% on this so if someone knows with absolute certainty that would be good!). The profile was an estimation of volume.

 

I'd point out that whilst a volume profile is more accurate in many cases, time is an important variable for many participants. If the market spends lots or little time in an area, that has impact just as the amount of volume traded there does. Also, the fact is that a volume profile does not show when a price has been touched and on how many separate occasions. This is all useful information.

 

If you want to use MP with or over VP, then you can choose any length of time per TPO but it is probably best to use 30mins at least to begin with. Much of MoM is not MP dependent and is about auctions so it's still very useful imho.

 

I thought volume was either available at the end of the day or the end of the week way back.

 

The profile is still a great tool to estimate volume in, say, currencies where there is no volume available.

[TheNegotiator 13]

I thought volume was either available at the end of the day or the end of the week way back.

 

The profile is still a great tool to estimate volume in, say, currencies where there is no volume available.

 

Yeah absolutely. I think it was available too every 30mins but could not be absolutely certain. Definitely a good point for the currencies.

[TheDude 10]

The Negotiator is correct.

 

As for the reason for the 30min periods, well my *guess* is that an institutional trader is more likely to look at a 30min chart than a 5 min chart which will be considered noise. Especially given the days when the pits were open and a 5min wouldnt be as accurate or available as a 30 min.

 

the floor i used to trade on used to have time codes for each 15min block of time. each 15min period had its own time code like 'AF'. These codes were supposed to be written up on trade cards to help trade matching. maybe the chicago floors used 30min sessions not 15min?

[TheNegotiator 13]

The reason I wasn't absolutely certain was that a bell was ringing in the back of my mind saying cbot had 15mins blocks for reporting periods. That could be wrong too though, or it could have changed from 30mins at some point. Not sure.

[zdo 20]

It's because when Market profile was first devised, volume was not available to traders in real-time. It was reported every 30mins (I am not absolutely 100% on this so if someone knows with absolute certainty that would be good!). The profile was an estimation of volume.

If memory serves - By the mid 80’s, the Chi Board of Trade sold what they called Liquidity Data Bank (LDB) data which the licensed MP dealer used to build the graphical profiles etc. For the first few years, hardly anyone used it for trading anything but 30 Yr bond futures, whose volume at the time dwarfed all other volume on all the exchanges including the spooz.

Steidlmayer and Koy, for whatever reasons, settled on and taught MP using 30 minute time frame… most likely because that was a practical / ‘sweet spot’ time frame for building profiles by hand – which most serious MP traders did then.

A short time later live volume was included in real time feeds but… through the years, legal intellectual property threats kept many charting providers from developing more user defined / flexible ‘profiles’, etc... emphasis on If memory serves