CBOT Market Profile

Does this help anyone?

Can this be altered to show Market Profiles on volume rather than price?
I know that FX volume isn't true volume but I am still seeing some interesting correlations between the price ranges that occur with high volume the previous day and how they can be important price points for the next day.

It's certainly amazing stuff to me. Just only following the development
of Buyers and Seller Curves, watching price as it retraces into the
curves and seeing price get gunned by what are most likely Other
Time Frame participants when it gets away from areas of trade
facilitation are just a few of the things that can be seen!
Wow. That was a nice run-on sentence. LOL!

I don't use MT4 or anything like that but I'm finishing up a spreadsheet in Excel that uses Dukascopy price and volume data to create activity distributions over price (yes, I know that the volume is kind of bogus but I'm more concerned with relative values vs. absolute values).

I'm using the 121 hourly bars from each week as my "session" and finding the price and volume based POC's as discussed in Hanz's excellent page.

-FxSurfer

thanks for the file.


-Rabid

I hear ya and appreciate your input and opinion. You are right, Dalton's stuff does have newer adaptations and is a 'better' read all in all for most.

For me though, most dry stuff is gold and the handbook is DRY.
I like the nuts and bolts or disjointed as you say(good way to put it).

Splendid tape reading to all.

Super-Basic MP pdf:

I haven't wandered around here much yet
but, it might be of use:
http://www.mypivots.com/forum/default.asp?CAT_ID=4

If it's in bad form to post a link to another forum
let me know and I'll delete the post.

This is a gem, and a basic concept that I missed in all the clutter of the huge CBOT book:

"Volume is the key to understanding Market Profile. If prices move away from the value area but volume starts to dry up, it is likely that prices will move back to the value area.
Such a movement indicates that sellers are not happy that prices are below value and buyers are not happy that prices are above value. Trading activity may increase only when prices return to the value area. If, on the other hand, prices diverge from the value area with increasing trading activity, that indicates market participants are reevaluating their idea of value."

While true in theory, in practice it's not always (or even often) accurate. Volume does tend to make a "peak" before a reversal, so if you see a decrease in volume following a set of increased volume bars, yea you might get a reversal, but that's almost always in hindsight.

At heart, the problem is that not all times have equal volume. Just compare 5am gmt to 7am/8am gmt, or 8am gmt to 9am gmt. There's a natural ebb and flow to volume just as there is price, it's not a shift in volume that should alert you... but rather an unusual shift in volume.

Take for instance overnight trading. Usually the volume should be very light and non-directional. When you have an unusually heavy and directional burst of trading during a normally very light session (ie: overnight) that's a huge blaring sign of a new imbalance. Just look at how big overnight sessions, trend days and range breakouts pair up... it's crazy obvious once you learn to look for it.

I mean think about... What is a gap if not just a large amount of overnight trading? You know how many day traders use gap strategies profitably? Entire books have been written on it. Heck, I have some of them. It's all just unusual imbalance tho, we don't need to get into a lot of fancy rules that cloud our judgment.

Anyway, all of that makes this much harder than it needs to be. If you just use range balance as your base, and trade only in the direction of an imbalance, life is good and easy. The basic concepts here are insanely simple. Price traveling thru time. Price versus time, price within time, price at certain points of time, price along time, it's all price with time. A reversal at 7am gmt often means something different than one at 10am gmt, for instance. It's just price and time. Volume is a tag along.

Thanks Rabid!

Wrote all of that hours ago, anyone check the EURUSD this morning?

Again we see movement in the overnight session, where movement is normally light... then bam, off like a rocket. Didn't really get much of a test in, more of a light pause... but the imbalance rule held and took us right out of the range.

I see what you mean!

Here's a general observation:

It seems that of the Majors,
E/U tends to accept new prices
best after being pushed out of
previous balance areas.

(Dis)Agree?

It does indeed. Balance area and the previous day's range are huge factors. Other pairs do the same, but each pair is skewed a bit by the underlying dollar action. From observation it seems the EURUSD best follows MP concepts and travels against the dollar by itself, it's rarely tethered by another pair.

The GBPUSD is a different story, it too follows MP concepts, but is highly skewed by dollar action. So in order to effectively trade it you have to know the daily forces for the EURUSD it seems. For instance a major EU imbalance might very well push the GU into a trend day, or a dd trend day, even if it opens inside balance.

Like today, the GU showed a range and the EU showed an imbalance. What happened was we got a tiny GU range extension because of the underlying action, altho in this case we stayed within the range (atleast have for now). This sometimes leads to conflicts, for instance if the EU action is up but we've pushed below the GU's balance or previous day's low... what's going to happen?

A situation like that is tricky, but for me... I'd just stick w/ trading the EU that day since it means the GU will be pulled in both directions. We don't have to be Marvin the mind-reader here, just enough to know where the odds are. So don't be afraid to bow out if the odds aren't screaming loud and clear. I didn't trade the GU today because of that exact reason... we've been pushing the lower range but the EU is skewed for dollar weakness right now.

Each pair has it's own time patterns and little quirks and skews. Non-USD pairs will be different, obviously, but I'm confident you could find a way to read them too. I mostly trade the EU/GU, so those are the ones I know best.

While this isn't entirely MP, the weekly pivot points seem to play a big role too. There seems to be a weekly balance as well as a daily balance. Price often seems to pause or stop around pivot points, and they make good TPs. Monday also seems to set the tone for a week, either as a down or an up week, with some potential for reversals based on MP action from previous days later on in the week.

Other factors come in too, I mean obviously the EU has to retest the 1.47 high... so if we break that point and see a major up imbalance, guess what's going to happen. On the other hand if the range breaks up, then fails to gather new initiative traders... and then drops and falls below value... See how that tells us in advance, at particular price levels, what the market is thinking? We can use daily action around there to set new price levels thru the week, and trade based on that.

E/U is a good one for me I think. I'm most familiar
with that one.

Many good points and much insight. Thanks!

Something else that I've been thinking about is the
actual presentation on the chart of "MP".

I have to say that, even though it's not a true MP
presentation, the price histogram chart overlay is
pretty darn nice. Maybe best for those who want to
check out MP principals and methods for the first time
or want to augment their other trading methods.
It just seems that the true MP charting format is too
much of a departure for most.

I assume that you use traditional TPO charts?

I wrote a little indi that draws the PoC, and then sometimes add in the MP indi that's floating around. One of these days I might expand it to add the value area and stuff, but for now most of that's easy to spot w/o a graphic.

I've finished the spreadsheet I was working on and have been using it to apply some MP concepts to the EUR/JPY this week. Sunday night I put last week's POC line on the chart as well as two current POC's for this week (because the volume based peak and the TPO based peak were different). Note the bounce off of both lines circled in red; it almost looks like I drew them in hindsight, but they've been on there since Sunday. Interesting.



I'd be interested to hear some analyses on the current situation from some more experienced MP users, but here's mine:

1. Price opened this week above last week's value area and continued up on rising volume. Volume peaked short of 129 however and then dropped off as price continued up toward 130. Looks like the long-term buyers lost interest here, or that the long-term buyers are trading the Asian session as opposed to London.

2. Price dropped back into last week's value area to retest last week's POC. The POC held, price moved back up and tested the current POC level for this week, which also held. It looks like we've got an initial balance area that extends from about 126.20 up to 129.80, which overlaps last week's value area.

3. The week is shaping up as a normal week so far, with a possible skew to the lower part of the range. Price just doesn't seem able to move above the value area in any convincing way so far. This could signal a halt to this pair's recent rally off of a major bottom. I would start shorting on any range extension to the downside this week, but would be more cautious on the upside.

4. EDIT: It looks like a good week to be using range-based strategies instead of trend following strategies.

So there you have my first comprehensive attempt to apply these concepts. Now stop all that laughing! I'd be interested to see some other takes on this.

A common trade occurs where price fails to continue bringing in initiating traders and reverses. If price continues reversing thru the previous day's value area you get a reversal trade if you want it. I sometimes take these, but not often. I took the long earlier, exited w/ my TP set to weekly R2, good for 100 pips. With the reversal I'm looking for shorts now. I mentioned this possibility in a previous post, I just got the resistance area wrong... it came earlier than I expected.

My specific entry will depend on where price is trading come 2am my time (7am GMT) and how fast it's moving. If it's super aggressive I'll take on the first pullback or a consolidation. If it's pushing past the southside of value but not lower than yesterday's low then I'll just put a sell stop like 10 pips out. If it's trading directly within (or above) the 4100-4000 range then I'll probably wait for some comfirmation by waiting for a pullback to occur after any breaks of yesterday's low. The more distance price has to go in order to break a previous high/low, the less sustainable it tends to be and the more skeptical I am. Sometimes that costs me a good move here and there, but it tends to keep me out of trouble much more often.

If price can't break below yesterday's low then I'll call it a range, and either trade it like that or just wait for Friday/Next Monday for another b/o.

I think your analysis is good. Better than mine. The only trick there is turning chart analysis into a viable trading method... hehe.

Excellent little video:
http://www.cciclub.com/marketvu/lind...ke-30mins.html

Uses similar strategies, just tailored to the S&P instead of forex... but the concepts can be adapted.

Just watched it; good stuff! Gotta love LBR. She's the real deal.

How about this:

It seems like a major part of MP theory is the
identification of Short TF and longer (aka Other)
TF Participants.

Balance Areas generally represent Shorter TF trading
and the gunning of price from one Balance Area to
another generally represents Other TF participants.
Differentiating between the two types of activity
is fairly straightforward...usually. LOL

Identifying and then jumping on board with Other
TF activity is a good way to go; with the Balance
Areas along the Profile providing entry and exit fine
tuning points.

If trades are filtered by trading in the direction of
Profile Imbalance then, all the better.

Yes? No? Maybe?
(If the reply was somewhere between and that
awesome. Just want to see if I'm on the right track.)

Thanks for the participation guys! It's really great
for me. Hopefully it is for everyone!


BTW: The move below on the chart continued on for
a good 50 pips more than I got out of it. The point is
that there were two different sets of interests at
work, both easy to see...a really uneven match up!

I think you've hit the nail on the head right there.


I think the only thing that matters, really, is that you're trading with the imbalance. That's where the difference between long and short term traders becomes obvious. If you trade against the long term traders it's not going to be pleasant. You'll notice that the imbalance often changes around certain key points, too... the previous high/low being common places.


There ya go. The rest is just refining a system that works for you from these concepts. It's kind of like a house, you wouldn't like the same furniture as the previous owner... but once you have the basic structure you can fill in the details from there.

The auction theory and market profile method provide a basic structure that you can use to build a system for trading when the odds are in your favor. The greatest edge we have as discretionary traders is choice. The market behaves unprofitably, except when it doesn't... figure out when it's presenting you with a profitable opportunity (wait for the money to pile up in the corner, as they say, lol) and take it. This methodology is less about the specific profile graphic and more about learning how to read levels of balance/imbalance.

I really appreciate the input and encouragement, Rabid!

Have a very HAPPY NEW YEARS EVE everybody!

Brent