CBOT Market Profile

Heya Leon,

When you say "value" I guess that you mean worth or usefulness?

I have to ask since Value (e.g. Value Area, Price away from Value etc.) is Market Profile parlance.

So mabe you are asking how Value within Price Distribution is determined?

In either case, I don't think you'll regret studying Market Logic/Market Profile.

A key point, which has been made several times in the thread, is it's all about the theory. To look at the MP graphic without the theory is useless. Conversely, once you know the theory you really don't even need the graphic. It's useful and makes things easy to see but, once you see what it's showing you, you can do without it.

What does it show you?

*What price area is currently accepted as fair value.

*The auction process within and, especially, in excess of value.

*The activity of longer timeframe market participants, who have the ability to either buffer or move the currently accepted vaue area, in response to the excess pricing.

*Keep in mind, Leon - this is real time as the market auctions away. The only lag is whatever is in our heads and ability.

It's really late here and I'm not only a MP novice but, a very tired MP novice. LOL. So, who knows if I'm coming across clearly at all.

A few posts back I posted this from Steidlmayer. Just to give you an idea of the depth of the approach and how nicely he presents the theory (as opposed to me):

Others on the thread here, namely Rabid and Thatoneguy, have good posts for you to check out.

Anyway, time for sleep, Leon.

Brent

Im going to buy the book that you have mentioned Brent, Im very interested In learning the core principles and although my personal beleif Is that one cannot profit only by relying on past data, I may be able to Use MP as a frame for making other trades.

Cheers mate.

Leon

I found a copy that you can borrow here, Leon:
http://www.worldcat.org/oclc/1535705...=brief_results

Just hate to have you buy it and then not want it. I think you'll really like it - but, who knows.

Most people seem to prefer Dalton's Mind Over Markets (which I also have and like) but, I 'll take Stiedlmayer's presentation of the basics, over that of others, hands down.

Markets & Market Logic is fairly expensive.

There are other books by Steidlmayer that have the same info:
http://www.amazon.com/Steidlmayer-Ma.../dp/0471215562

Well, after reading this thread and most of the short articles/documents mentioned here "Mind over Markets" is on its way from Amazon... let's see what the fuss is about

One thing that I still don't see clearly regarding market profile is how it can be used to plan our trades. I think the basics that have been explained here are not too difficult to grasp, at least in their basic form, like auction/imbalance that moves the market. I am under the impression, though, that what bulls/bears consider a fair price can change quite a bit in a matter of minutes in this market, so I don't know to which extent having the "auction view" of the market helps us in any way different than what -for example- support and resistance tells us about possible points of interest.

Anyway... I am eager to see what Dalton says on this

One of the things covered is a "selling tail" and a "buying tail." These work better in currencies than the TPO count. Basically you wait for sharp rejection to come in at the current day's high or low, and it forms a little tail, and you trade that as a pattern.

But there's other ways, too, that the book will cover. Some more effective than others in FX.

Some (very) random thoughts on Market Logic/Market Profile posted here:

http://www.forexfactory.com/showthread.php?t=170080

Well, I have now had the time to read "Mind over Markets" twice. The first one was a relatively quick reading, and the second one a more detailed one, taking notes, etc. There is a lot to be absorbed and it will take further reading, and especially practice in front of the charts.

I have liked the book. Rabid is totally right, there is a lot more to the market profile than just a histogram-type graph. That said, I still feel a little dubious about how to apply it to (my) trading, or whether I will be able to. Perhaps the concepts that stood out the most for me (as the most directly useful) are the relation of the opening and first moves of a day in relation to the previous one (opening in value, in range but ouf ot value, etc...), and what the imbalance -if there is one- is telling us. My impression is that this might be useful to get a directional bias for the day (where is price more likely to go? Was there for example a range extension and a test of an extreme, but a failure to continue? Could that extreme hold??). However, even these relatively simple concepts seem difficult to apply when confronted with a real chart. They tend to be notoriously less clear than book examples (Dalton himself says that). I am still left with the impression that price is so unpredictable that it could do anything, anytime.

Anyway, for the next days I'll try to establish a daily routine of analyzing the profile of the previous day and the developing one at market open and see if it takes me anywhere.

EDIT: The first day of application and I might have found a good example already... Watching the beginning of the euro session and considering it as the opening (so, disregarding the assian session) it is clear the market has opened out of value AND almost out of the previous day range in GBPUSD. Right now it just probed 1.6300. Now, looking at this with MP eyes... I have no idea where this is going to go, but I assume if 1.63 holds it will turn around and we might have something resembling a normal day, while if 1.63 breaks this might start running down. Makes any sense at all?? I am feeling like placing shorts below 1.63 in case it breaks.

When trading the GBPUSD you have to pay close attention to the EURUSD. Oftentimes the cable is just following the dollar, which is easier read thru the EURUSD.

On top of that, look for "failure to follow-thru" at various points in the chart. You may need to look at higher TFs, outside of the intra-day chart in order to determine that, but it makes it easier to come up with a more accurate initial assessment. Then correct that w/ data coming in.

You can't tell the value of a probe until the bar after it is closed. But given the failure to advance beyond 1.66 on the higher TF, a failed price probe could be significant. Notice, however, that the start of this bullish move occured when price failed to follow-thru yesterday's low. A lack of new sellers was a bullish sign, and you can seen a failed price probe in the M30. On the daily, a bullish OB is forming. If it holds, we might see some serious bull moves that spawn off this. Of course that's not a prediction, just a "might happen, watch the market" kindof thing.

As a result, I would be reluctant to take shorts in the current market. If we do see failure to advance beyond a new high, then we could be in for range contraction and the formation of some sideways motion. That's always good for trading, since the tops and bottoms are so well defined.

Also take a look at market correlations across other pairs and indeces. The DOW futures are positive (which usually indicates dollar weakness) and the EUR is showing strength across a lot of pairs. That makes for a pretty simple read.

As I talked about earlier, there's a billion patterns you could read off this. If you try to read them all, you'll go nuts. Just pick 1 or 2, and use them. I like the failure to follow-thru past a previous S/R or daily high/low, personally. I think that's pretty easy to see, since you can use the H1 and H4 to draw the shorter term S/R, and yesterday's high/low is super easy to spot.

At that point the rest comes down to trade management. Don't expect the trade to shoot to the moon. Wait for price to reach a reasonable return, close a chunk of your trade, move the rest to BE and just loosely trail. That way you can be wrong on the exit and still make money, no sense in making life more difficult than it has to be. I found that expecting too much from my trades was a big reason I wasn't doing very well.

Thanks for the detailed explanation, Rabid.

I have to admit I still find these concepts a little "diffuse". Actually, the concepts are reasonably clear, but their application to trading looks diffuse to me. For example, if there is a failure-to-follow-through, one cannot tell it is really a failure until price has bounced back... at which point the trade may not be that profitable anymore. If, conversely, one tries to enter early it is not unusual for price to break the line in a second attempt. All these things look a lot easier in hindsight, but I still fail to see how to apply them *properly* to trading intraday in real time. It is a sensation I also got a few times while reading MoM.

You obviously have found your ways, which makes it clear that it is possible to read the markets based on this information. Frankly, at this stage it looks extremely difficult for me to do it.

P.S: I am not trying to be gratuitously negative here. The concepts Dalton explains are relatively easy to understand, but proper practical application and use of this stuff *is* difficult, at least for me.

The crux of trading. And the reason why known patterns and reading sentiment are important.

The problem with price probes is that there's often some small rejection, but that doesn't hold. Whipsaw. That's information too tho, telling us exactly what the buyer and seller mentality is. But in a vacuum, that doesn't help either. It has to be compared with overall sentiment. For instance if a bull trend is growing strength, a weak bullish price probe tells us that buyers need a break. Not a good idea to go long there.

If you need a more "concrete" trading method, then develop one around these concepts. For instance you could use a combination of trendlines, moving averages and failure patterns to indicate a short term opportunity for an edged entry, then manage the trade around a higher TF to stay in trends with little risk.

For instance:
If price is stuck in a ranging pattern, then you could take both sides, if the trend line is accelerating then trade only that direction, if it's decelerating then stand back until you get a clear read. Once you know overall sentiment, you're half-way there. Price breaks below yesterday's low in bullish sentiment, then fails to go further down and comes back up (MA cross back in the direction of the trend, 9/21 ema on the M30, for instance), and you might have a setup.

The whole thing here isn't the indicators, or the graph, or some battle between trading styles. It's just to figure out a way to read sentiment in a way that works for you, to avoid trading when sentiment isn't clear, to determine when things are no longer clear as quickly as possible, to trade only in the direction of obvious sentiment imbalance, and to quickly determine when that has changed.

Everyone's brain is a little different, what works for person A won't work for person B. But the underlying concepts can be adjusted to fit anyone's style. Don't be afraid to do that, just do it on demo for a while since there's no sense in wasting cash.

Don't worry ... I am not a total forex newbie, just bad at it, but a mature and thoughtful person otherwise. After 2 years at this I only trade live with mechanical systems (EA adaptations I have made of existing systems). Those seem to make some money, but any discretionary trading on my part would be a pointless waste at this stage.

Thanks again for your advice


EDIT: I was going to stop here because I have too many questions/doubts about the whole use/usefulness of MP, and I think I need to do more work on it by myself before continuing this discussion. But there is one thing I have to ask: you have mentioned several times that one has to be able to gauge "market sentiment" to be able to benefit from the information provided by MP. But... isn't exactly that what we are trying to do with MP? Get an idea of "where the market is trying to go", to quote Dalton? It seems a little bit of a chicken and egg problem to have to know where the market is going to effectively apply a tool that is supposed to help determine where market is going. Unless I am misunderstanding what you mean by "market sentiment".

I am not concerned with systems, although I appreciate your suggestions. Really. What I meant by a more "concrete, practical" application of MP was along the lines I have just mentioned... How does it help me know where the market is going?

Anyway, as said... I think I need to work more on this by myself and see if it takes me anywhere. Thanks again!

very informative thank you all !

Bam!

Hello all. Just wanted to tell you all this thread is great. I really love Market profile as a conceptual framework for looking for obvious support and resistence area and the interaction between small and big timeframes.

As Rabid pointed so elocantly, it is not much about the profile itself but the way it picture the principles found in auction market theory and the laws of suply and demand. Adding to these the teachings of Wyckoff and you have all the most important frameworks to build a sound stategy.

Also, Rabid, I am truly happy that you contribute here with your posts as I do really value them a lot. Your way of depicting MP and others subjects is really interesting and refreshing.
Sincerely

Shreem

http://www.forexfactory.com/showpost...2&postcount=28

Hi Rabid ,fxSurfer and all

Its all about observation is it not?
IMO point and figure charting able to draw the point of control but its lag of time and i knew price chage and has speed (volatility) and time .... but how you measure time?


Ben,

Attached is a chart. I use the auction market theory as part of a bigger picture strategy. The chart is a 4 hour chart of a trade I took this week on the EURUSD. As I've said before, I like to aim for "riders" ie: little risk-free lots scaled in the direction of a bigger trend (trendline is still up, barely, altho it's losing momentum fast).

I saw a chance to perhaps get one there, when price was in the blue box I went long (notice that it's also near, but slightly above, the resistance area before it. Responsive buyers were coming in a little early, a potentially bullish sign). I drew the yellow line to indicate where I was expecting the next resistance to be, since I knew responsive sellers would try to force the price down. Because I knew there was going to be a bit of a battle there, I took most of my profit before I even reached that point. I closed 3 of my 4 lots, moved my 4th to break-even.

When price started failing (which you can see better on a lower TF) to advance further past that point, I knew it wasn't probably going to hold. That was the point where, if I hadn't already, I would've moved my SL to break-even. I ended up trailing the SL behind that small bullish H4 bar at the yellow line, and it got taken out soon after at a small profit even tho price went against me (making money even when price goes against you totally rocks, it's all about being agile).

Now I could've seen that as a chance to go short. I didn't, as a rule I don't hold a position against a trend, but it was a good chance to close some of what I had. The whole point is just to be quick to catch sentiment changes. In some cases that change can indicate a chance to open a new trade, other times it's a good time to manage the ones you have.

In this case the EURUSD had been in an uptrend for a while before it started losing momentum. That's sentiment. That's imbalance. The up days were bigger than the down days, people were clearly willing to buy on strength (initiative trading) to continue the action. It would be hard to see that as anything other than a buying opportunity.

Now fewer people are buying on breakouts, most are waiting for the trend to decide and trading responsively. The imbalance is fading or changing. But that doesn't mean the trend is gone, sometimes it's just taking a break, so sometimes that's the best chance to get in if you're prepared to manage your losses. Just be prepared to trade responsively like the rest of the herd.

I don't have even the foggiest clue what the EURUSD is going to do now. I'm not even going to pretend that I do. I have suspicions, but they're not worth even the electrons required to type them up. But whatever it does do, it'll be plain to see when it starts. When a new imbalance begins, so does the opportunity.

Never really looked at P&F that much. Found an old indi, played with it, didn't know how to use it, didn't feel a need to learn. From my understanding tho P&F factors time out of the equation, it's just price and direction. The MP graphic is all about time, it's price thru time. Time is an integral part of all of this. If price takes a long time to move a small amount, that tells us a lot about what traders are thinking. If price moves a lot in a small amount, well, that's just something different.

MP uses "TPOs" to meaure time. Basically it's price moving a certain amount in a certain amount of time. Usually like an 1/8th of a point within a 30 minute TF. The exact numbers aren't as important, it's just how consistently you use them.

Hello Rabid and thanks a lot again for a great post of yours. That is really much appreciated and very well written.

I have few questions for you if you dont mind:

1) If your still using market profile charts to look at the daily or bigger merged profiles, how many tick per row do you include when you build your profile? Obviously, in the spot fx market, as currencies move a lot in a single day, only using 1 tick per row for create the MP profile or bell curve, is not really convenient as it make it too big. Just wondering what your thought on this.

2) As the currencies market, either be future currency market or spot fx currency market is an 24 hours market, when you build your MP profile, what is the start time of the day that you choose to do it and why? Do you prefer to start at London open or?

3) Which is related to question 2, in order to get your daily high and low, what is the start of the each day in the spot fx market in order to determine the previous day or low?

Again, thanks so much for your great posts. I do really learn a lot about what your saying and really like the way you think and how see the dynamic of the market.

Thanks a lot in advance

Sincerely

Shreem

@ Rabid......I like the way your playing this game
PA & Volume....all we need!

Sometimes I put it on a chart if I'm looking for intra-day values within a contracting range. Price usually goes to the opposite value area, which makes for a good partial TP. Mostly I'm just looking for where most of the previous trading took place, since that's where "trade memory" will be, leading to a probable S/R.

Someone brought up (think it was here) the idea of drawing it dynamically on the most recent outer range (kindof like a fibo). I think that'd prolly work best. That'd be a killer indi if used correctly.


I like the EU start. Germany opens an hour before the UK. Other's have had luck using the end of the day instead, ie: the start of the Aussie session. It's probably pair-specific, the GBPUSD tends to be lead by the EURUSD, so trading those during the EU/UK session makes sense. Trading the USDJPY might make more sense during the JPY session.

I use midnite GMT as my daily high/low. Usually that works pretty well, but if price is trending straight... well, it's not that meaningful. If you draw the high and low at midnight, and then draw the high and low like 6 hours earlier, you'll find they tend to be the same some 90% of the time. It's just that most of the movement happens earlier in the day, so it doesn't really matter whether you close the day an hour or 2 different than someone else.