Surfing Risk Intraday - Volume Profile and Order flow

Here's a trade example from today in the GBP future (6B)

Firstly check out the daily chart. Notice we are in a tight balance area that starts after the buying climax on the 17th February. We are right in the middle of this balance area, so I have drawn a volume profile over all the bars since the 17th, to show me where the VPOC is of this range, as well as the Value area high and low. There's are the values I have

VAH - 1.6715
VPOC - 1.6682
VAL - 1.6638



Now have a look at the intraday chart. Notice yesterday (3rd March) we put in the daily VPOC at 1.6717.. Right in line with the VAH of the overall balance. This is all the confluence I need for a short entry. That coupled with the fact that we closed much lower yesterday, so I knew the 1.6715-17 short level would only be hit after a rally and potential exhaustion. This trade ran for 5-6R (I risk 10 ticks in GBP and it has run for over 55 ticks and is potentially still going) However I personally only took 4R on this trade, after all we are still in balance on the larger time frame, and it would be foolish to expect a trend down day.



PS, notice where the low of the day was put in (during the asian session) 1.6638, the value area low! It's also a High Volume Node on the daily chart shown by the green line

RS

Great education as usual RS

There are a lot of abbreviations going about:

VPOC - Volume point of control
RTH - Regular trading hours
VAL - Value Area Low
VAH - Value Area High
IRT - ????

We could do with a definition of VAL and VAH, I can't remember them being covered. Also I have no idea what IRT means.

Hey MC, Yeah sorry everyone about the abbreviations, they're so 'standard' to me I forget that some people are learning this for the first time.

Here's a quick list

VP - Volume Profile
MP - Market Profile
VPOC - Volume point of control
POC - Point of control (Classic Market Profile charts only)
VA - Value Area
VAH - Value Area High
VAL - Value Area Low
IB - Initial Balance
IBH - Initial Balance High
IBL - Initial Balance Low
VWAP - Volume Weighted Average Price
MID - Midpoint
RTH - Regular Trading Hours, Pit session
ETH - Electronic Trading Hours
DOM - Depth of Market, Price Ladder
HVN - High Volume Node
LVN - Low Volume Node
OR - Opening Range


I did cover the basics of VA here - http://www.forexfactory.com/showthre...06#post7233806

Let me know if it's not comprehensive enough and I will create another post with a bit more clarity.

IRT is just a charting package (Investor R/T). It's very similar to the Market Delta platform I use, but without the footprint feature

Hope that helps

RS

Hate to sound like a broken record but we have the same situation again here in the S&P. Double top yesterday at 1874.75 (Weak high) which was tested multiple times overnight too. Extremely high probability of that getting taken out in the RTH session in my opinion, I'll be looking to get onboard long (hopefully lower) to target those highs

Thanks RS, sorry I forgot that the VA was already covered.

Regarding the trade above, you said that there was a double top, and it seems like weeks highs. Here we have two things which on the face of it counteract eachother, double tops indicating downside, weak highs suggest a draw for price and a potential break. How do you reconcile these two conflicting pieces of info, I guess there is lots of background info to considers, for instance general trend, buy areas, when price was set etc.

Double tops doesn't indicate downside to me personally. I know it's taught that way, but when you look back, there are infinitely more examples of cases where Double tops or bottoms don't hold as proper swing points. When I see a double top, followed by a bit of a sell off, I think about all the retail traders who are getting trapped by the 'reversal pattern' and how likely it is they will get their stops run. A double top to me is just another form of a weak high.

But I think your main point is asking what I do when I have several pieces of conflicting info. In most cases, there is always a reason not to take the trade, i.e. a piece of information that goes against your hypothesis. Obviously when where are an equal number of reasons to buy or sell I simply sit on my hands. However if I am bullish but I am trading against an obvious bearish pattern, I am usually even MORE confident in the trade, as I know if that obvious pattern fails there is likely to be an exaggerated move in my favour. I am actually very nervous when literally everything lines up in my direction, as I then become worried that it's too obvious, and therefore too many people will be seeing what I am seeing, making me feel it's a sucker play. After all, if everyones already long, who's left to buy?

RS

nice one RS!


right now it does look like we have some indecision at the level (Double top) , and as of now , Not in the favour of the bulls..

btw. a double top / bottom Sup. or. Res.. ist just a level to look out for trades.. and as i see it .. if we have weak to no reactions towards and at these levels.. its more likely to see these levels taken out..


in this case.. we should sit on our hands.. and wahtch how that indecision plays out.. or if that is ones trading plan bracket the high and low of the indecision .. and tarde a breakout eitherway

Yeah low volume in the S&P Future today, about 80% of the average. RTH range has only been 6.25 points, the 20 day ATR is 17.75 points.

We did take out that 1874.75 level though.. just about

Thanks for sharing your analysis in the thread, welcome anytime

Hey Risk, just wanted to pop by and say well done on the GBP trade today. The Bund triggering would have just been the icing on the cake. Glad to know that you are still active on the website!!

Cheers Spring, yeah full steam ahead on the website, getting quite a few subscribers now so there's no such thing as a day off!

Here's the reasoning for the potential Bund short. Basically price broke out of one balance to test another balance, I expected sellers to step in around the VPOC of the older 5 day balance. (see chart for a full explanation)

Ok so I've been getting a ton of emails asking me how compatible my method is with Spot FX and where can they find indicators for Metatrader. Personally I didn't expect to meet so much resistance to try futures, but I have looked all over the web and discovered an Profile indicator for MT4 that looks fairly stable/reliable. I have attached it here with instructions.

However I can't fully endorse trading spot FX using market profile since it's not something I've attempted. I'm not saying it's not feasible, but it certainly needs extensive testing before putting real money to work.






Source: http://www.earnforex.com/metatrader-.../MarketProfile

Attached File(s)

MarketProfile for MT4.zip   3 KB | 2,412 downloads

Hey Risk and others, just to add, there is an interesting thread on Auction Market Theory (AMT) that's around the forums. Within there, a very talented programmer, Bundung (I stand to be corrected!!) created an indicator which generated a crude volume profile chart. It also highlighted the VA as well as the VPOC. However, with recent builds of MT4 going up to 614, I can't confirm if these indicators will work at this stage. I know a few developers are working on cracking the code.......

I personally experimented with the indicator, but the broker feed I used had a volume consistent with futures volume (According to VSA threads in here as well!!). Many times, the VAL, VAH VPOC proved to be important levels. However, manual back testing and statistical reviews could not confirm a trading edge. However, when combined with general TA, SR etc, they gave some profitable trades. I was quite a believer in Volume from way back!!

As for the resistance to try futures, I think a major part of it has to deal with the costs associated. Data feed and Trading Platform costs over $320 per month. That's IRT and DTN. MD costs more than IRT!! Then there are other associated costs, brokerage fees etc. Aside from that, there are other costs such as a redundant ISP, phone line etc, mobile phone capable of being a modem etc. The costs add up bit by bit. Many traders are unwilling to start with such high overheads. Hence the reason for the push towards the low cost MT4 platform.

Yeah I did have a quick spin through that thread, seemed like an awful lot of chat about setting up the charts and very little about auction market theory! but yes, full respect to those programmers who spend their free time developing this stuff, not something I have the skills to do


You're right, to get the full Market Delta setup can be quite expensive. But there are cheaper options actually. I'm looking into Sierra Charts currently which is only $40/month (Includes charts and data feed combined). Some of this software is light years ahead of MT4, so I think the fees are justified, but yes I understand many people won't be willing to commit to something like that if they're only learning or demoing. Having said that, $40 is only 3-4 ticks trading a 1 lot in ES, so it kinda pales into insignificance when you start trading live.


Here's the Sierra Charts setup.. .



Edit: Just been in contact with Sierra and it's actually only $35/month for Volume profile charting software + data feed

Hey Risk, just one quick question about the SC software and data feed. How reliable is it? I've been doing some research and so far, SC has been given quite a few thumbs up. Additionally, no questions have been raised with their data feed, unlike OEC which has given me a few worrying moments!! I've also discovered that its very great on CPU resources, but its never really taxed my setup

I should mention, the majority of my costs are data feed. IRT costs about $70 or so, but the DTN is where the costs is. However, I was able to get a bit of a discount from them.

Have you tried doing the balance areas as well, and comparing it to your present setups? Are the levels within a tick to each other?

Interesting charts this past few days, with rollover, I've learn't to expect anything. So I just sit on my hands. Keep up the great work BTW...(PS, I've been looking at the historical results !!)

Hi RiskSurfer,
I want to subscribe and learn from your signals using Sierra Charts, but I am new to futures and struggling with which broker to choose.
Can you advise a broker to use? It looks like they are all US based and I live in the UK.
I would want to paper trade to begin with to get familiar with things and then start with a £2000 - £3000 account for live trading.
Is this enough funding to follow your signals?
Dave

Yeah the high and volume nodes all correlate nicely, the actual volume traded on each price does not match perfectly, but since we're only interested in reading it on a relative basis it doesn't really matter. And actually it's possible that Sierra Charts is more accurate since it matches better with my X_Trader execution feed. Awesome you got a discount from IQFeed, I didn't even think of asking!

Cheers, Rollover is a major pain. At least it's only once per quarter, although I trade CL quite actively (not profiling) and that rolls once per month, so basically 1 out of every 4 weeks you have rollover flows. There is a small advantage to be had if you can determine if people are net long or net short the expiring contract, and (therefore they need to either buy or sell the calendar spread to roll, but in general I'd rather just have one never ending continuous contract!

The results have been good in March, but February remains my best month of 2014 so far

Hey Dave,

I'm based in the UK too, the only major clearer we have here is Marex, and they are not particularly accessible by retail traders. There's no problem with having a US based broker, you can still keep your funds in GBP, they just loan you $ or Euros on margin to trade whatever you want. I probably shouldn't be recommending brokers publicly, and I'm not allowed to PM you being a commercial member, but if you shoot me an email at [email protected] I can point you in the right direction.

Regarding the funds, The margin requirements for most futures markets are $500-$1000 per contract, so £2000 - £3000 should be plenty initially, just make sure you spend enough time on Demo, and be aware of the psychological differences between trading on Demo and Live

RS

Hi RS,
Just sent you an e mail as you suggested.
Dave

Here's an example of the kind of top down analysis I perform for each of the markets I trade, this time for the Bund (FGBL)

BUND

Weekly – On the weekly timeframe we can see we’re in a clear uptrend since 2009, this is due to the fundamental ‘risk off’ trade that has been with us since the beginning of the financial crisis. Bond prices move inversely to interest rates, Germany is seen as a ‘safe haven’ relative to more worrying nations within the EU such as Spain, Italy and Greece. Therefore the German Government pay a very low interest rate on the debt it issues. This is reflected in the elevated Bund price.



We peaked initially in May 2013 at around 143.00. This peak coincided with the day that the ECB cut the benchmark interest rate (a good example of buy the rumor sell the fact) Prices then started to fall as the QE stimulus in the US was being priced in. Prices tumbled down through the second half of 2013, and eventually bottomed around the 135.00 handle.

However 2014 has not had such a ‘risk on’ feel to it, stocks have struggled and money has been flowing back into safe havens such as the Bund. Prices have recently taken out the May 2013 highs, and have pushed up to the 144.00 handle in the last few days. It seems clear that interest rates will not be going up any time soon, and therefore the bund price will not be falling at time soon.

From a long term fundamental view, the key theme to watch out for is when traders start to price in an interest hike by the ECB, this will certainly put pressure on Bund prices, and being short this market with a 2-5 year time horizon is likely to be high probability trade.

From a technical perspective the aggressive rally of 2011 is over, and now we are in more of a balanced phase, but with an upward bias. Since were at the top of the trend channel, I’m looking for clues on the lower timeframes that the recent rally may be exhausted.

Looking at a weekly volume chart we can see that a lot of business has been done in the 135.00 – 140.00 channel. This is key as it indicates there will be many people sitting on a loosing position when price finally stages a sustained breakout from this balance. I would expect the move away from these prices to be quite aggressive. In the event of a break to the downside I think we could see a quick move to the 130.00 handle. Upside breaks I think will be more limited as from a fundamental perspective interest rates are already very low and there is little motivation for capital flow into this market



Shifting to the daily chart we can see a sustained uptrend for the last couple of months (the most recent upswing in the weekly channel). We moved aggressively higher in January, went sideways in February, then pushed higher once again in March on the back of the Ukraine/Crimea/Russia news. Although we are clearly making moves to the upside, the trend is starting to look tired to me. Each time we make a new high; the price tends to back off over the next few days. This fits in with the theory that sellers are re-motivated up here at the top of the trend channel seen on the weekly chart.

We have a lot of volume built at the 141.89 area. This was generated by the February 2014 chop. We did break out of this balance area and make new highs at the beginning of March. Sellers then stepped in at retested the VPOC of that balance, which did hold as good support. Now that that level has been tested once, I don’t expect a second bounce if we should trade down there again, I think it’s more likely we ‘re-accept’ these prices that caused so much chop in February. This will be the first sign that the up trend is beginning to weaken. The main challenge for sellers is to overcome the 141.07 Low volume area. There are likely to be many stops collected in here, so if we start to trade below 141.07 I think we will quickly slice down to the next high volume node of 140.63-73.



Moving to the Intraday Chart, we can see the last two sessions (Monday and Tuesday) have been trending down, after a strong close of Friday. Contrary to traditional analysis it is quite common for markets to take a breather or retrace a bit after posting such a strong closing price. I have a Risk Surfer buy level down at 142.98-00, this is based on the naked VPOC left behind from Friday 14th March, This levels stands out well to me, and buying makes more sense than selling at this point given the recent trend. However as I mentioned earlier, I do think we are starting to see signs that the uptrend is slowing down, although I will wait for the market to prove this theory before entering short trades aggressively. I have no sell levels in the Bund at the moment.
The second buy level I have is down at 142.36-38. This is just below the open gap created between the 11th -12th March, with the added support of the naked VPOC left behind from the 11th.



Near-term target for longs – 143.98 – All time high
Near-term target for shorts – 142.41 – Open gap from 11th/12th March 2014

Long-term target for longs – 145.00 – Psychological level (round number)
Long-term target for shorts – 141.07 – Key Low volume node on the Daily chart

Hi Risk Surfer, nice analysis in this thread, had some nice reading the pdf you posted too.

Btw I had downloaded the mt4 indicator you posted, and I have some doubts to clarify.

1. Is the arrow I referring is the Point of Control?
2. If it is, what's the reason for the different length of POC in each session?
3. I realised the time start doesn't change even when I modify the time settings, is there a workaround to my prefer session?

Sorry if you do not use the indicator in mt4 at all.