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Auction Market Value Theory & Analytics

  • #221
  • Nov 6, 2014 1:12pm Nov 6, 2014 1:12pm
I missed trading this one........
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Markets are not efficient, rather they are effective - Jones
  • #222
  • Nov 6, 2014 1:20pm Nov 6, 2014 1:20pm
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Markets are not efficient, rather they are effective - Jones
  • #223
  • Edited 11:05am Nov 8, 2014 9:37am | Edited 11:05am
Donald L. Jones
Copyright CISCO Futures August 9, 2009

Market Flow
Markets are complex. A number of variables (reference points), are needed to make up the whole. Mathematically it means that a distribution function describing an auction market cannot be found. For the ordinary trader, 'complexity' means there is no one variable, like volume, that can do more than describe a small piece of a market. Generalizations of the sort 'if this' then 'that' for any particular variable (e.g. volume, volatility, initial balance, etc.) is not enough to provide guidance. A more comprehensive approach is necessary.

The CISCO method is to measure a number of descriptors, group them and take a consensus. Two kinds of descriptors are used: price directivity (higher or lower) and market activity (increasing or decreasing). A third set, derived from the first two, is predictive (which way the market is leaning).

A tried and true CISCO tool for developing market variables (reference points) is the Visual Graphic (Profile). VG tracks a dozen or so directional markers (price, profile, initial balance, etc.) and about half as many activity markers (volume, volatility, trade facilitation, etc.). These are posted, along with the previous day's reference points on the Visual Graphic Report. Also posted are 5, 10 and 20 day Overlay graphics, which identifies those markets in balance and their important descriptors (upper and lower limits of the congestion, it's range, etc.)

Day Trading Engine uses the VG descriptors to net out the 'flow'; what the market is currently doing (as of the end of the day). These measurements are 'positional', the positions held EOD. Any one of the descriptors (reference points) is merely a part of the whole picture. The collective posting is the 'Market Flow Table'. The goal of the Flow Table is to predict the market's most likely flow direction for the coming day. The format of the report is designed for a quick scan of the net flow as a part of the preparation for developing a day trading set-up for the next market day.

The Visual Graphic
The standard CISCO Visual Graphic display shows the recent market track and reference points for the latest two complete days. Three general types of data are shown: market direction (up or down), market intensity (increasing or decreasing) and a directional prediction based on the other two. If a market is in balance/congesting (5, 10 or 20 days), that is shown along with the congestion limits and estimated risk for a breakout trade.

The Visual Graphic information set provides market condition (balance or not), whether market activity is increasing, decreasing or non-directional; and indirectly, the general flow or tilt of the market.

Observation of the 5, 10, 20 Day Overlays and the Rotation Profile offers a general view of a market's behavior: where it has been and how it got to this point. This includes both objective information (balance limits and the directionality of the individual reference points) and subjective data (sum of directional markers, attempted direction, etc.).

Day Trading Engine Flow Table
Work on the Day Trading Engine methodology was started late in June. By mid-July the Flow Table design was complete. Most research work was on the Emini SP, since that is the most heavily traded future. The first Visual Graphic is for July 10.

The five day Overlay is in balance (Bracketing), with limits of 89200 (upper) and 86650 (lower). The value area upper limit (VA U) is 87625, lower limit is 87200, POC is 87450.

The fact that this market is congesting might lead to the conclusion that since the market is in equilibrium the flow direction is flat. That is not necessarily so. Markets run and pause, run and pause, forever. A pause is always temporary because a breakout and run is just around the corner (maybe the next trading day, or the next, or...). Furthermore, how far away the next run is cannot be known with any certainty. It is true that a breakout from a longer term (several days) balance is going to happen. Also, it is generally the case that a balanced market gives some signals that it is getting ready to move; there is directional flow.

But the Day Trading Engine methodology does not require a balanced market. All markets display the run - pause behavior. This has been demonstrated in long (multiday) timeframes, in intra-day timeframes of 90 minutes and now in timeframes of a few minutes.

In all cases the Visual Graphic provides the data for market flow measurment.



(small note these reference points can be found using any Meta-profile indicator)
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Markets are not efficient, rather they are effective - Jones
  • #224
  • Nov 8, 2014 9:57am Nov 8, 2014 9:57am
Reading, Deciphering the DTE Display
The Visual Graphic (VG) data above is for UU July 10, 2009. The H and L x's are a positional tally of the VG reference points. At the end of that day a tally of the reference points leads to the market flow.
The Directional elements add up to three higher and eight lower (Net = +5).
The settlement price is lower (87425 vs 87900).
The Activity elements have four greater and one smaller (Net = +3).
Predictive is one up and one lower. Predictive is not used in the Net count.

What is the conclusion for the Flow?
Directional: lower: Activity greater: Predictive: not used.
Conclusion: Flow direction is down. More activity could presage a downward move. However, the market ended in a balance (89200 upper limit, 86650 lower limit). The balance suggests that the observed internal flow is possibly merely fluctuation in a congesting region.
For Monday then, the jury is out. A Breakout always trumps the flow direction reading.
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Markets are not efficient, rather they are effective - Jones
  • #225
  • Nov 8, 2014 10:14am Nov 8, 2014 10:14am
An examination of the Visual Graphic for July 13 confirms our analysis of the previous evening. The day started out above the lows of yesterday and, after the first hour, showed strength the rest of the day. An upside breakout occurred fairly late in the day and the close is above the breakout price.

Now go back to Table 1 to read the EOD flow for tomorrow.
The Directional elements add up to seven higher and two lower.
The settlement price is considerably higher (89550 vs 87425).
The Activity elements have three greater and two smaller.
Predictive is both higher (but not added to the Net).
What is the conclusion for the Flow?
Directional: higher: Activity greater: Predictive: Up.
Conclusion: Flow direction is up. This finding is buttressed by the upside breakout from balance and maintaining that position at the close.

Visual Graphic is a significant store of market information, but our goal in this exercise is to demonstrate a scan, a fast read of the abbreviated Flow Table. The abbreviated Flow Table is a part of the Day Trading Engine, but any users of Visual Graphic can train themselves to do a scan from the Visual Graphic itself.

Limitations of Reference Point Analysis
As stated above, Table 1 comes from positional information in the visual Graphic. This positional information on sixteen reference points generates a single result, the flow direction. It is human nature, supported by the holistic nature of Steidlmayer's profile analysis, to want to select individual reference points for predictive purposes. The difficulty with this path is the nature of markets, the fact that auction markets are complex. That complexity shows itself by the varying importance of any one reference point. A popular reference point is the volume. In Mind Over Markets, pages 192 - 193, there are 30 volume analyses that are applied to directional performance. But in a complex situation there is feedback and non-linear interactions between the reference points. So it is dangerous to fixate on volume, or volatility, or trade facilitation or any other reference point. The net behavior of the group offers gross information, flow direction in this case. Taking too narrow a view, like betting on volume change, in most cases leads to disappointment.
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Markets are not efficient, rather they are effective - Jones
  • #226
  • Dec 23, 2014 11:29am Dec 23, 2014 11:29am
Hi Claudia, its been awhile....

Have manage to get some time down on AMVT stuff & stick to a platform.....
Just simple trend trades here, basic model trades, basic trend analysis....may need more time on those analytic table..

Bracketing on the 3,10&20day overlay...finally broke the lower limit of even the 20 day...

EURUSD Chart 3,5,10 & 20day overlay on the right edge.
http://i.imgur.com/2Vl8oR5.gif

USDJPY: Been adding to this base on previous days brackets of 3&5 days...still trending hopefully approaching new highs
http://i.imgur.com/rYlODMx.gif
  • #227
  • Dec 24, 2014 8:21am Dec 24, 2014 8:21am
Quoting Evak
Hi Claudia, its been awhile.... Have manage to get some time down on AMVT stuff & stick to a platform..... Just simple trend trades here, basic model trades, basic trend analysis....may need more time on those analytic table.. Bracketing on the 3,10&20day overlay...finally broke the lower limit of even the 20 day... EURUSD Chart 3,5,10 & 20day overlay on the right edge. {image} USDJPY: Been adding to this base on previous days brackets of 3&5 days...still trending hopefully approaching new highs {image}
Great trades!
Its always a pleasant surprise to see your posts. Hopefully with the New Year you may find the time to post more often!
Markets are not efficient, rather they are effective - Jones
  • #228
  • Dec 24, 2014 10:26am Dec 24, 2014 10:26am
Just have a few drinks but not drunk...YET!

I forget to mention....

Merry Christmas...& a Happy New Year!!!!
  • #229
  • Dec 24, 2014 10:34am Dec 24, 2014 10:34am
Quoting Evak
Just have a few drinks but not drunk...YET! I forget to mention.... Merry Christmas...& a Happy New Year!!!!
Cheers!!!!!
Markets are not efficient, rather they are effective - Jones
  • #230
  • Edited 10:05am Dec 31, 2014 9:22am | Edited 10:05am
Tooks afew trades, set & forget mode...

EU short & GCHF long with 3,5 & 20 day bracket & nice balance..both long.
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CADCHF with 3& 5 day bal in 2 days & 2 trades( also a 9 day bal)
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2 fail trades despite showing very good shorterm Balance. With GU lack of confidence even if it looks like it wants to go UP..
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USDCAD fail SHORT eventually reversing to responsive....
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  • #231
  • Dec 31, 2014 9:50am Dec 31, 2014 9:50am
Super 2015 to Miss Vega and the good friends !
Patience is magic
  • #232
  • Dec 31, 2014 12:29pm Dec 31, 2014 12:29pm
Quoting Evak
Tooks afew trades, set & forget mode... EU short & GCHF long with 3,5 & 20 day bracket & nice balance..both long. {image} {image} CADCHF with 3& 5 day bal in 2 days & 2 trades( also a 9 day bal) {image} 2 fail trades despite showing very good shorterm Balance. With GU lack of confidence even if it looks like it wants to go UP.. {image} USDCAD fail SHORT eventually reversing to responsive.... {image}
Beautiful charts! Your posts are a sight for sore eyes.
It’s a privilege that imo, you being one of the most valuable contributors to the “previous” thread, that you would take time to post here. It’s nice to know that someone else is on the same page. Maybe it will encourage others who have read through the AMVT material to post as well.
I like the diversity of you charts. I spent many years trading only the EU. This year the analytics have let me expand my trading across many more pairs. Trading multiple pairs is still kind of new to me.

Hope you continue with the great posts!
Markets are not efficient, rather they are effective - Jones
  • #233
  • Dec 31, 2014 12:32pm Dec 31, 2014 12:32pm
Quoting Muntu
Super 2015 to Miss Vega and the good friends !
A Happy & Prosperous New Year to you too!!!
Markets are not efficient, rather they are effective - Jones
  • #234
  • Jan 2, 2015 3:03am Jan 2, 2015 3:03am
Quoting mzvega
{quote} Beautiful charts! Your posts are a sight for sore eyes. It’s a privilege that imo, you being one of the most valuable contributors to the “previous” thread, that you would take time to post here. It’s nice to know that someone else is on the same page. Maybe it will encourage others who have read through the AMVT material to post as well. I like the diversity of you charts. I spent many years trading only the EU. This year the analytics have let me expand my trading across many more pairs. Trading multiple pairs is still kind of new to me....
To All here, A Happy New Year!

Speaking of diversity of pairs; with AMVT one can see what the pairs have gone through or spending more time either vertically of horizontally. A better birds eye view i suppose. So tackling other pairs rather the the common one seems less intimidating. Of cause volatility is a double edge sword in any case. Other the GU my preference is GCHF. But take what i can get now so long the spread is manageable.

GU;I miss to key off this trade though but here is a nice all round 3,5,20 balance & 10 day bracket at least...completely pass me by....rapid move down that did not look back.
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UCAD, manage to keyoff on this 3,5,10 day bracket.. cautious here as it approaching 13day high
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I am also anticipatingbreakout for GCAD & AU...
  • #235
  • Edited 8:47am Jan 2, 2015 8:33am | Edited 8:47am
Quoting Evak
{quote} To All here, A Happy New Year! Speaking of diversity of pairs; with AMVT one can see what the pairs have gone through or spending more time either vertically of horizontally. A better birds eye view i suppose. So tackling other pairs rather the the common one seems less intimidating. Of cause volatility is a double edge sword in any case. Other the GU my preference is GCHF. But take what i can get now so long the spread is manageable. GU;I miss to key off this trade though but here is a nice all round 3,5,20 balance & 10 day bracket at least...completely...
What a Great way to start the New Year!!!
You killed it with your UC trade. Great Trade
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Markets are not efficient, rather they are effective - Jones
  • #236
  • Jan 2, 2015 8:38am Jan 2, 2015 8:38am
Quoting Evak
{quote} To All here, A Happy New Year! Speaking of diversity of pairs; with AMVT one can see what the pairs have gone through or spending more time either vertically of horizontally. A better birds eye view i suppose. So tackling other pairs rather the the common one seems less intimidating. Of cause volatility is a double edge sword in any case. Other the GU my preference is GCHF. But take what i can get now so long the spread is manageable. GU;I miss to key off this trade though but here is a nice all round 3,5,20 balance & 10 day bracket at least...completely...
I didnt catch anything as great as that GU set up but
I did manage to get into chfjpy & eurjpy
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Markets are not efficient, rather they are effective - Jones
  • #237
  • Jan 2, 2015 12:13pm Jan 2, 2015 12:13pm
U too...Very Nice Jpy trade. My jpy focus are mainly EJ & UJ for now. Jpy pairs seem to be on a correctional moves almost 3 weeks & UJ actually reverse back up today after last Tuesday liquidation leading the re accumulation it seems...

UC went berserk with OTF up move, i am very please indeed. ...it is a long term break out. The result of an extended horizontal development as seen in the balance profile of the 10 days... Now i wish i have the time for GU this afternoon

USDCAD OTF performance after extended congestion period...
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  • #238
  • Jan 3, 2015 10:48pm Jan 3, 2015 10:48pm
This is a rehash of a previous post "Market demand interpretation aided by the volatility"
I want to touch on this subject in my next post with "current real data" as opposed to the text book example used in the following example......

Market demand interpretation aided by the volatility. BAL is 5 day balance as per the Overlay Demand Curve. ULIM and LLIM are the Overlay balance limits. VTY is the half-hour bar average volatility for the day.

Start with the Balance as of close Jan 28.
Jan 29, breakout on down side alerts for start of trend.
Close of Jan 29: Price lower, volatility at 546 is up 80 percent.
Interpretation: volatility implies demand is still present.
Close of Jan 30: Trend bottomed out at 108075. Closed higher.
Interpretation: short timeframe trend is over. Higher volatility
is not directional and is disregarded.

Start with the Balance as of close Feb 4.
Feb 5, breakout on down side, volatility up 30 percent, price lower.
Interpretation: short timeframe trend is probably still in place.
Feb 6, price moves down slightly, volatility is only 27 percent above entry.
Interpretation: demand or trader interest is not growing.
Feb 7, price continues down, volatility is down to 22 precent above entry.
Interpretation: demand continues to decay.
Feb 8, local bottom reached at 107550, close is higher, market in balance.
Interpretation: trend is over.

Start with the Balance as of close Feb 8.
Feb 11, breakout on the upside, close at breakout price, volatility lower.
Interpretation: breakout not supported by demand increase.
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Markets are not efficient, rather they are effective - Jones
  • #239
  • Edited Jan 4, 2015 12:12am Jan 3, 2015 11:55pm | Edited Jan 4, 2015 12:12am
Evak, I know you're familiar with AMVT. I just wanted to go over the data again for others who aren't. I just want to show that by tracking "condition & volatility” in addition to the "flow table" adds another layer of analysis. I use this data to filter tradable brackets, entering a trend, exiting a trade or adding to a position.

Since I have been trading pairs I'm not familiar with, I need to know what to do when I see a bracket in balance. When I find an overlay that’s bracketing, are we bracketing because the trend has ended? Or has it been bracketing and looking to break out? How long has it been bracketing?

Or maybe I see a BO. I need to know, are we trending? How long has it been trending? When did the trend start? When did it end?
Is the trend getting stronger or is it weakening?

"Condition & Volatility" answer those questions as well as explain where we are in the auction process (context)………..
The data "inside" the profile will tell you things you cant possibly know by just "looking" at the profile ( you cant quantify a picture of a profile)

Unlike the text book example I go through the data from the bottom going up (Analysis starts at the bottom of the table 11/27/2014)

Dist "1" = Bracketing
Dist # >1= Not Bracketing or,
If Bracket UL & LL = "0" then "Trending" (there are no Brackets in a trending market)
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Markets are not efficient, rather they are effective - Jones
  • #240
  • Edited 11:30am Jan 5, 2015 10:34am | Edited 11:30am
Volatility and Stops for the DayTrader
Donald L. Jones, CISCO Futures, January 10, 2003
Copyright Donald L. Jones, all rights reserved

http://www.cisco-futures.com/volatilitystops.html

Volatility is extremely useful in evaluating risk and trading potential in auction markets. It is used by day, swing and option traders as well as long term investors. Only the investors have enough data to find a statistically valid measure, the standard deviation of several hundred days of price range. Even here, there is the limiting assumption of equilibrium. In the shorter timeframes of a day or two, equilibrium is not present. In fact, traders are looking for disequilibrium (moving value); that's where the opportunity is. The trader needs to know yesterday's volatility and the day before, not the average for the year. Changes in local, day-to-day, volatility alerts the daytrader to potential changes in price.

It is often observed that markets begin moving internally before starting to trend. Once movement is underway, volatility usually continues to increase for a period and then tends to relax back, decreasing as the market moves back into congestion. When the move is over, volatility goes back to longer term average values. If you know the volatility is increasing or decreasing you have a valuable decision tool. The size and direction of the volatility prepares you for price change and lets you quantitize and time your risk.

We will first define exactly what short time frame volatility is and then show how to compute it on a day-to-day basis. Day, swing and option traders can have a realistic value and history within which to set their trading strategy.


Volatility Defined
Volatility is simple in concept, surprisingly complex in it's determination. Gordon Gustafson in the June 2001 Stocks and Commodities defined the short timeframe volatility as the ATR (a days true range). Kevin Lund in the May 2002 Stocks and Commodities defined volatility as "rate of change in price over a specific time period". Both err. Volatility is an (average) price fluctuation, not a velocity. It is created by differences in opinions about value. Mixed in with a volatility measurement is random noise, a fluctuation due in part to the tick size. If a market is in a trend, volatility (and noise) rides along, helping to obscure the change in value.

Option traders often use implied volatility, a value that is backed out of the traded option price. Since price itself contains noise and other fluctuations, implied volatility includes "real" volatility plus an unknown fluctuation factor. Implied volatility is prone to all those errors associated with price variation (noise, manipulation, large trader's strategies, etc). Long Term Capital Management which lost $1.3 trillion, had its largest positions in implied volatility trades (R. Lowenstein, When Genius Failed....., Random House, 2000).

Sampling
The definition of volatility is straightforward since it is just a measure of price range variability (average range). Making the measurement with limited data is not so trivial. It depends on appropriate sampling. Statisticians have much to say about sampling theory, which for this work boils down to "have enough data to get a realistic average". Noise (random fluctuation) is the second factor in market fluctuation and must be understood. If it is minimal it can be ignored, if not it must be sorted out of the final result.

The problem we solve is "what was yesterday's volatility". As noted, the key to finding a days volatility lies in being able to validly break the day down into its constituent parts. Fortunately we have some experience with the Market Profile data base, which is developed from half-hour sampling. So we start with the Meta-Profile data and its half-hour bars. From there we will generalize, showing that half-hour bars are quite good for the purpose, but 25 minute bars are probably somewhat better.
Markets are not efficient, rather they are effective - Jones
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