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Auction Market Theory and Market Profile

  • #2,861
  • Jun 9, 2011 1:35pm Jun 9, 2011 1:35pm
Quoting tgwhbb
long liquidation vs genuine move...

Guys (and girls), I've been trying to figure out how to identify a long liquidation move vs a real down move. Any thoughts? I'm comparing today's down move to last wednesday's move, and the profiles don't look much alike, leaving me wondering if today's downmove is a genuine move. However, EU is still one-timeframing up, so a short IMO is still risky.
b & P profiles are the hardest thing for me to grasp. Here is a couple of things I try to use as reference:
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Markets are not efficient, rather they are effective - Jones
  • #2,862
  • Jun 9, 2011 1:46pm Jun 9, 2011 1:46pm
something I try to keep in mind is that the pattern starts with the long tails. I dont think it can be called "rally" or "break" unless it starts with that initiative tail. If its the same type pattern but was not built the same way (long tail first) I think you just call it down distribution/up distribution. I could be wrong in my interpretation. This is a difficult part of AMT I struggle with.
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Markets are not efficient, rather they are effective - Jones
  • #2,863
  • Jun 9, 2011 2:13pm Jun 9, 2011 2:13pm
Quoting mzvega
something I try to keep in mind is that the pattern starts with the long tails. I dont think it can be called "rally" or "break" unless it starts with that initiative tail. If its the same type pattern but was not built the same way (long tail first) I think you just call it down distribution/up distribution. I could be wrong in my interpretation. This is a difficult part of AMT I struggle with.
well, NY today looks like long liquidation break in that case...which makes sense seing as there was no interest at the top of the 3-day balance (Mon-Wed). So, plan of action now is to watch for initiative selling which would indicate this LLB was accompanied by new selling. so far I have not seen any, only responsive selling at NY IBL and responsive buying at Friday's POC...
Change is the only constant
  • #2,864
  • Jun 9, 2011 2:55pm Jun 9, 2011 2:55pm
Quoting mzvega
something I try to keep in mind is that the pattern starts with the long tails. I dont think it can be called "rally" or "break" unless it starts with that initiative tail. If its the same type pattern but was not built the same way (long tail first) I think you just call it down distribution/up distribution. I could be wrong in my interpretation. This is a difficult part of AMT I struggle with.
It really depends...

U don't need to start an initiates as it can be responsive too...IMO

For simplicity i just refer to P formation short covering rally where u have e.g. the 1st 2 period starts from the upper end of the profile price decline sharply on the 1st two periods, then u have a responsive reversal back up into the area where it begins until it eventuate to balance...looking like a P.
In addition the POC have to be lower then previous one for a proper P formation.

If i may put it this way; Is not where it starts starts but where it ends that counts, the last few periods just cannot be going back down else is it would be become a double D formation instead.
  • #2,865
  • Jun 9, 2011 3:00pm Jun 9, 2011 3:00pm
Quoting tgwhbb
well, NY today looks like long liquidation break in that case...which makes sense seing as there was no interest at the top of the 3-day balance (Mon-Wed). So, plan of action now is to watch for initiative selling which would indicate this LLB was accompanied by new selling. so far I have not seen any, only responsive selling at NY IBL and responsive buying at Friday's POC...
I reckon the weekly IB now base on the 1st two days range would qualify for at least a 1xRE down, close to VPOC of 4400?
  • #2,866
  • Jun 9, 2011 3:12pm Jun 9, 2011 3:12pm
Quoting Evak
It really depends...

U don't need to start an initiates as it can be responsive too...IMO

For simplicity i just refer to P formation short covering rally where u have e.g. the 1st 2 period starts from the upper end of the profile price decline sharply on the 1st two periods, then u have a responsive reversal back up into the area where it begins until it eventuate to balance...looking like a P.
In addition the POC have to be lower then previous one for a proper P formation.

If i may put it this way; Is not where it starts starts but where...
"I dont think it can be called "rally" or "break" unless it starts with that initiative tail."

I did not mean "initiative" as a "type" of tail. (as in "inititive buying" or "initiative selling" I meant "Where the start of the tail initiated from (started from). Meaning, either way, Sorry for my verbage.
Markets are not efficient, rather they are effective - Jones
  • #2,867
  • Jun 9, 2011 3:23pm Jun 9, 2011 3:23pm
Quoting Evak
It really depends...

U don't need to start an initiates as it can be responsive too...IMO

For simplicity i just refer to P formation short covering rally where u have e.g. the 1st 2 period starts from the upper end of the profile price decline sharply on the 1st two periods, then u have a responsive reversal back up into the area where it begins until it eventuate to balance...looking like a P.
In addition the POC have to be lower then previous one for a proper P formation.

If i may put it this way; Is not where it starts starts but...
That confuses me so! (worded that way) I can not wrap my mind around that for some reason. Could you rephrase that for me (im slow sometimes) or better, draw or show me a picture. In my mind that statement says "balanced" profile.
Markets are not efficient, rather they are effective - Jones
  • #2,868
  • Jun 9, 2011 7:49pm Jun 9, 2011 7:49pm
Quoting Evak
I reckon the weekly IB now base on the 1st two days range would qualify for at least a 1xRE down, close to VPOC of 4400?
i'm not convinced. I'm most likely wrong, but here is my thought process.

Monday/Tuesday auction up in search of sellers. None were found near 1.47 - lack of selling tail IMO proves that. Wednesday still technically an inside day, with increased volume with decrease in price but no movement of value. 4620 area now a prominent POC.

Thursday price breaks on news, fuels selling, produces a DD day and a long liquidation NY session. Price drops to virgin POC and distributes above it. IMO that is sign of reversal to the upside and a move to the prominent POC.

Current Asia session showing early signs of initiative buying at the upper extreme of the lower distribution from Thursday. I highly doubt Asia has what it takes to move price up, so must wait for London to see what's next.

And here's how I use VSA to complement. marked bar is the highest volume bar since last Friday, its a wide spread down bar closing well off the lows with the next bar closing up. That is buyers stepping, producing the pop up. But what is interesting is the rest of NY afternoon price drifted down on lowering volume, another bullish sign.

As JD states, have options identified. Here are mine, which are certainly hindered as i'm sleeping for the start of london...

1. 4560 area. expect responsive selling there (WIBL, WVAL, monthly profile ledge). If initiative buying, price should go back to around 4620-4660, prominent POC and weekly VAH.
2. below 4500. Expect responsive buyers. if initiative sellers, then down to 4400 (last week's POC) IMO
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Change is the only constant
  • #2,869
  • Jun 9, 2011 9:49pm Jun 9, 2011 9:49pm
Quoting mzvega
That confuses me so! (worded that way) I can not wrap my mind around that for some reason. Could you rephrase that for me (im slow sometimes) or better, draw or show me a picture. In my mind that statement says "balanced" profile.
I found good e.g. perhaps may help you..this is EJ weekly

After a long market auction price fail to rise with excess with a top failure then market starts its decline

The decline continue the next week with Monday's declines as seen in the P profile & then from there u have a short covering rally which reverse price back up to balance...the rest is self explanatory..

One thing interesting, the "Rally high" indicated on the right of the chart is typical inventory adjustment or "market pause" in a down trend..it kind of reminds me of EU right now...

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  • #2,870
  • Edited 10:47pm Jun 9, 2011 10:30pm | Edited 10:47pm
Quoting Evak
I found good e.g. perhaps may help you..this is EJ weekly

After a long market auction price fail to rise with excess with a top failure then market starts its decline

The decline continue the next week with Monday's declines as seen in the P profile & then from there u have a short covering rally which reverse price back up to balance...the rest is self explanatory..

One thing interesting, the "Rally high" indicated on the right of the chart is typical inventory adjustment or "market pause" in a down trend..it kind of reminds me of EU...
The only problem I have with that is, dont you need to be "net short" in order to have a "short to cover."??? In your e.g. whos closing old short business in your photo? Other than a "retail trader" who would be short that rally? Any old short business should have been exited long before , imo. Closing old business at the top of a rally long liquidation, short covering is when markets too short or otf exiting short positions. Again, i dont understand being "too short" at a rally high? The attached photo imo is short covering rally, that pattern on a high, not valid, imo and, visa verse, long liquidation break is only valid in a long market. but whos covering a short postion at the top of a rally? Why cover a short position in your photo, when you could just stay short?

Add: I just noticed those are weeklyprofiles. Maybe that changes it, but it doesnt make sense to me
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Markets are not efficient, rather they are effective - Jones
  • #2,871
  • Jun 10, 2011 12:49am Jun 10, 2011 12:49am
What do we see now?

1. A b profile in US session
2. A VPOC at 4623
3. Inventory for asian session is short
4. It touch last friday POC twice and bounce.

So I place a buy pending order at 4505, let see how London open reaction to the current situation.

My plan B is if price try to go after last month POC at 4273, so if price break 4472, I will look for good entry to short all the way down there.

By the way...this is how Guam Looks like
  • #2,872
  • Jun 10, 2011 1:08am Jun 10, 2011 1:08am
MP for the year has 1.4212 POC...MP for the previous month has 1.4248 POC...
The Market pays you to be disciplined
  • #2,873
  • Jun 10, 2011 2:49am Jun 10, 2011 2:49am
Quoting alexm
What do we see now?

By the way...this is how Guam Looks like
hi alexm,

just had to say WOW!, your photos are amazing. It looks an fantastic place. What a wonderful job, so different to trading.

alien
  • #2,874
  • Jun 10, 2011 4:40am Jun 10, 2011 4:40am
Quoting mzvega
The only problem I have with that is, dont you need to be "net short" in order to have a "short to cover."??? In your e.g. whos closing old short business in your photo? Other than a "retail trader" who would be short that rally? Any old short business should have been exited long before , imo. Closing old business at the top of a rally long liquidation, short covering is when markets too short or otf exiting short positions. Again, i dont understand being "too short" at a rally high? The attached photo imo is short covering rally, that...
yep it is weekly.

By the time the market gets too long u wont see longer timeframe traders there once valuation gets too expensive. So only the shorter onces stick around to wait for initiative sellers to ponce on it & eventually they all start piling up with the shorts....

If the market get too short too fast, panic sets in & all the late comers start to cover. Shorter timeframe traders still in control but not for long..once the cover is finish the longer timeframe starts piling in with more shorts (which is the profile after the P profile) Eventually the longer time frame sellers initiates..

I understand your perspective about net shorts, but the use of "retail traders" only as the traders who short those market is too simplistic, it can be anyone for that matter. I know this too well cause my own brother is one of those commercials shorterm traders. They make the same mistakes like we do too u know..
  • #2,875
  • Jun 10, 2011 6:29am Jun 10, 2011 6:29am
Quoting AlienTrader
hi alexm,

just had to say WOW!, your photos are amazing. It looks an fantastic place. What a wonderful job, so different to trading.

alien
Tks Alien, I wish I can stay there

Back to our topic and "reality", on daily chart, for those who trade longer term time frame will see it as one time frame down just started. So my view changed to short now, with first target Last month POC at 4275.

Better don't fight with the train.
  • #2,876
  • Jun 10, 2011 8:19am Jun 10, 2011 8:19am
Quoting alexm
Tks Alien, I wish I can stay there

Back to our topic and "reality", on daily chart, for those who trade longer term time frame will see it as one time frame down just started. So my view changed to short now, with first target Last month POC at 4275.

Better don't fight with the train.
Hi Alex, indeed very nice pics!

As per my last post, responsive sellers found around 4560 area, in fact price did not make it that high, then initiative sellers founds under 4500 in asia. indeed that naked monthly POC looks like a good target, but most likely next week IMO. For today i think more 4400-4420 area.
Change is the only constant
  • #2,877
  • Jun 10, 2011 9:11am Jun 10, 2011 9:11am
EU opening was driven up to VAH then reverse back & driven down below fair value.

Weekly RE just above 1X as it approach VPOC of 4400.

London inventory is short but the market didn't care.
Attached Image
  • #2,878
  • Jun 10, 2011 9:13am Jun 10, 2011 9:13am
Quoting alexm

...

By the way...this is how Guam Looks like
Looks like i found my new office...the circle earmark on the last pic ...set...



nice pic indeed tks.
  • #2,879
  • Jun 10, 2011 9:17am Jun 10, 2011 9:17am
Quoting Evak
EU opening was driven up to VAH then reverse back & driven down below fair value.

Weekly RE just above 1X as it approach VPOC of 4400.

London inventory is short but the market didn't care.
Attachment
London 1x extension on the low was my target, hit it to the pip. Closed, done for the week, not as courageous as you to take a long down at 4400 although it is low risk given daily range is exhausted and london session is nearing its close...
Change is the only constant
  • #2,880
  • Jun 10, 2011 9:34am Jun 10, 2011 9:34am
Quoting Evak
yep it is weekly.

By the time the market gets too long u wont see longer timeframe traders there once valuation gets too expensive. So only the shorter onces stick around to wait for initiative sellers to ponce on it & eventually they all start piling up with the shorts....

If the market get too short too fast, panic sets in & all the late comers start to cover. Shorter timeframe traders still in control but not for long..once the cover is finish the longer timeframe starts piling in with more shorts (which is the profile after the P...
I still dont think you can have a "short covering rally" in an uptrend as in your picture, how do you have a rally when your aready at the top of a trend? How do you have a liquidation break at the bottom of a trend.

as per "mind of markets" page 126-127:

"Short Covering Rallies Probably one of the market's most deceptive
and misunderstood behaviors is known as short covering. Almost all rallies
start with "old business" covering their short positions, which at
least temporarily causes price to auction higher. If this rally is not accompanied by new buying, it is usually due solely to short covering.
Short covering often follows a day (or several days) of strong selling
activity. As the market moves farther out of balance, participants simply become "too short." A sharp rally, generally occurring on or soon after the open, follows as participants enter to cover (buy back) their short positions. The need to cover may be a result of: (1) locals simply sellingso much that their inventories become too short; (2) profit-taking after anextended down move; or (3) other timeframe participants with short positions who are forced to exit. Like a kettle that whistles when too
much steam has built up inside, a short covering rally is a short-term

event that relieves temporary market pressure."

as per "mind of markets" page 131:


"Summary of Short Covering and Long Liquidation A

Profile beginning to


develop the shape of a "P" or a "b" does not infer that short covering or

long liquidation is occurring. Remember, all facts are surrounded by
other circumstances. Properly evaluating short covering or long liquidation
patterns requires that the trader make careful note of the underlying
conditions prevailing in the market and the requisite characteristics that
signify each pattern. The main considerations are: (1) the recent market
direction compared to the formation, (2) the open—near the low for a
short covering and near the high for long liquidation, (3) the subsequent non-continuation after a drive away from the open, and (4) gradually retracing auctions as the short-term buying or selling releases temporary"




your e.g. sugguests traders have been long (strong buying). If your net long you would not have shorts to cover. You would be liquidating according to your chart.




"Short covering often follows a day (or several days) of strong selling

activity. As the market moves farther out of balance, participants simply become "too short."" I dont see that in your e.g.




if you were short during that rally why cover that short or take profit? Youd be underwater already, and there would be no profit!

Markets are not efficient, rather they are effective - Jones
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