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  • #541
  • Jan 6, 2016 12:31pm Jan 6, 2016 12:31pm
A Three Year Sample of Market Units from Five Day Overlays for emini SP
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Figure 5. Balance Periods for Three Years of emini SP

This three year period of pauses (the blocks) is additional, convincing, evidence of the lack of periodicity in an auction market's eternal run - pause behavior. Unlike Figure 4 where price levels are included, this graphic is intended to show only the temporal extent of the balances or equilibrium periods.

Some statistics:
Over the three years of Figure 5, there were 59 market units ranging from 3 days (the minimum) to 91 days. The average period is 13 days, four in balance (pause), nine in run. The longest balance is 9 days, the longest run is 87 days. the Shortest pause is 2 days (by definition) and the shortest run is 1 day.

Further, the concept of markets being in equilibrium with steps of non-equilibrium to the next equilibrium level (Portfolio Theory and Capital Markets, W. Sharpe, McGraw Hill, 2000, pg xxiii) is rather tortured if the balance periods, the blocks of equilibria, are present only about a third of the time. Also, the balances vary widely in time (Figure 5) and price (Figure 4). Figure 5 and the balance statistics could lead one to the conclusion that markets can be thought of as non-equilibrium entities with occasional periods of equilibrium. If these findings are applicable to individual stocks, the practice of portfolio management could be in for a big change.

The Market Unit (tm)
By Donald L. Jones, March 17, 2005
Copyright 2005
Markets are not efficient, rather they are effective - Jones
  • #542
  • Jan 6, 2016 1:59pm Jan 6, 2016 1:59pm
Quoting dljonesFan
{quote} Very interesting view! Thank you. I realy enjoy our conversations, they force me to think about my view of the market. I reviewed my statistics. 1. I noticed that often the 20 day plays a major role in successful 5day breakouts. The 20day value expands at the start of a main trend, stops expanding at the later midpoint and shrinks at the end of a main trend. That tells me that the at the end the other timeframe trader/the public loses interest and professional capping starts to build up on the lower TFs. Not a good time to choose breakout...
Time Dependence of a Market Unit

A market unit is defined in terms of the length of the chosen balance period. If a 5 day balance is chosen for analysis, as in Figure 5, a 3 day balance would show two days of balance before the first 5 day balance appears. Then, if the market remains in equilibrium, a 10 day balance will appear in due time. Since the 5 day is a subset of the 10, over a long time period there will be more 5 day balances than 10, more 10's than 20's and so forth.

Whatever balance times chosen, market units seem to be pretty independent. The first 5 day balance unit appears to have little effect on the time of existence and behavior of the second and subsequent five day units.

Steidlmayer in his writings on profiles considers a market to have memory, as do many others. Many trading 'rules' are based on markets returning to 'significant' chart price levels. Within the context of the run-pause concept, these 'significant' prices are more properly described by price ranges (balances). For any commodity there are real costs that ultimately set value. As these costs and projected costs change, the value envelope changes. The value envelope encompasses a range of prices and some overlap is bound to occur, giving the appearance of 'significant' prices.

In the real world of trading, much of the time a balancing market shows both 5 and 10 day balances. A breakout of the 5 day will continue and later in the day there comes a breakout of the 10 day balance. For the trader, the first breakout (from the 5 day) is confirmed by the 10 day breakout. This differentiates a five day false breakout from a 'real' move rather quickly.

The Market Unit (tm)
By Donald L. Jones, March 17, 2005
Copyright 2005
Markets are not efficient, rather they are effective - Jones
  • #543
  • Edited 6:15am Jan 7, 2016 3:34am | Edited 6:15am
Quoting mzvega
{quote} First let me start by making a simple suggestion, stop looking at the daily profile. This is not "Market Profile". There is a reason we don't trade daily profiles, 1 day of data is not a large enough sample to detect changes in the condition of the market. There is a reason we use a min. of 3 days worth of data for our analysis. Overlay "Demand" curve. We are measuring "demand". If 80% of the intraday trading volume is held by short TF participants, who end the day flat. 80% of the volume created by those traders carry no element of real...
Thank you for that explanation. At the same time I read some pages of the VBPT again about "Internal Trends" (pg.104). It was like an evolution step.
The last weeks I tried to solve that short term direction and activity problem with the net flow data created by 1 day tfs and the 1 day profiles. But that data only confused me because it is too short/volatile. I thought there must be a way to solve that problem like Dalton does and studied his works again. But he uses daily, weekly and monthly bar charts too for this purpose+ a lot of experience. "Dont mix the methods!" R.Wyckoff once said. That was my fault.

I created a new excel spreadsheet with the 3 and 2 day data and 1day net flow. I will study the short therm development in contrast to the long term tfs to get better results. I also changed my price step from 10 to 5.
1. Where do you get your net flow data from? My net flow data is not the same as yours. I use the daily data from the composite profile indicator. There is no information about initial balances inclouded.

2. I have a problem with stops. They are often too tight for holding a longer time. I set them in the lower octant area, always wider than vty (for ex: VTY= 13,1 -> 150 points) . Today I got kicked out 2 times AUD/NZD downbreak on 5d bracket and 20d bracket. Can you please give me some advice?

greetings
C
  • #544
  • Edited 1:53pm Jan 7, 2016 12:39pm | Edited 1:53pm
Quoting dljonesFan
{quote} Thank you for that explanation. At the same time I read some pages of the VBPT again about "Internal Trends" (pg.104). It was like an evolution step. The last weeks I tried to solve that short term direction and activity problem with the net flow data created by 1 day tfs and the 1 day profiles. But that data only confused me because it is too short/volatile. I thought there must be a way to solve that problem like Dalton does and studied his works again. But he uses daily, weekly and monthly bar charts too for this purpose+ a lot of experience....
I think you misinterpreted that post about initial balances......I use the data from the daily composite, same as you. IB again, an is old legacy MP concept, when the cbot/cme had an set open & a close, no computers, and no overnight trading. It was not a 24h market like forex. As per Jones, in 24h markets IB does not carry the same implications, as an exchange traded market. In a 24h market lets say some one in China wakes up the first couple of hours of trading is the IB, from my USA Calif. perspective it's still yesterday!(subjective data rather than objective) All these IB concepts are in the context of trading "exchange" hours, This why Jones say's "MP is exclusive to the CBOT/CME". Cisco-futures was the first "authorized vendor" of cbot/cme LDB volume data for MP. Cisco also traded crude not on the cbot exchange, but the cbot & steildermayer said MP only worked with LDB cleared volume data.

Jone's resume reads literally "Rocket Scientist", and did the research...from MP tool to "Auction Market Value Theory"
Dalton & Steidlmayer MP concepts come in the context of short tf exchange "floor traders" who end the day flat. Jones just expanded on it.
That's why we use "MetaProfiles" not MP for trading. You see IB in the example because Cisco was a "Data Vendor" for CME/CBOT. I never said I used an IB

Quoting mzvega
{quote} . TPOs within the IB range is a reference (variable). Used in isolation wont provide any insight. IB is an old legacy MP concept exclusive to CBOT, CME. And with the now 24h trading,somewhat obsolete, imo. It might have some value to someone who trades exchange hours. But IB belongs to old legacy MP which uses daily profiles. We dont use MP methodology, or daily profiles in this thread. We use the data from the daily profile for analysis
Markets are not efficient, rather they are effective - Jones
  • #545
  • Jan 7, 2016 1:46pm Jan 7, 2016 1:46pm
Quoting dljonesFan
{quote} I have a problem with stops. They are often too tight for holding a longer time. I set them in the lower octant area, always wider than vty (for ex: VTY= 13,1 -> 150 points) . Today I got kicked out 2 times AUD/NZD downbreak on 5d bracket and 20d bracket. Can you please give me some advice? greetings C
I believe I mentioned that I don't usually use stops, and if I do it's because I'm sleeping and then later removed.

The basic model suggests 1 tick below the oct, I believe Evak recommend 2-3 time the VTY. I take myself out if I get a "close" below the oct or the UQ dpending on how strong bias is from my analysis. I don't look at the "candles", the PA fakes me out. It looks scary seeing red candles, by removing the "fear" element, I'm less emotional. I take the emotional drama away, all I see is where my risk tolerance lies, nothing more. Again take my advice with a grain of salt, I don't use stops unless I'm sleeping.

I'll end with a few Jones quotes............

1) "Typically traders have little confidence in their own market analysis. They purchase trading models that come with overblown claims. This is irrational; if such models were one-tenth as good as claimed, the developer would trade them himself and become rich. You will learn to analyze markets for yourself. Your knowledge gives you the edge because you understand the reasons for entering and exiting trades. You will be able to evaluate a markets' tradeability and to avoid the common errors of greed and fear. You will first learn a strategy that relys wholly on protective stops. As your market knowledge increases you will come to rely less and less on protective stops, especially for your exit from a winning trade." -Jones

2) "The aim of the Auction Market Analysis is low risk trading. The better the market understanding, the lower the risk. One's ultimate goal is to know the market
and oneself so well that one trades without stops most of the time. Prior to achieving this goal, most traders must use stops to enforce their discipline.
Stops inevitably increase drawdown and hence, risk. However, while one is gaining auction market understanding, stops will limit absolute risk, i.e. the risk that comes from 'holding and hoping'.

A trader's learning process leads to modifying and improving the Basic Model. The quickest and easiest way to learn is to become thoroughly familiar with
the TCP. The range of phenomena is very wide. As the trader implements new ideas, the Basic Model becomes less and less recognizable. A new model begins to take form, a model unique to that trader.

A consequence of the modification process is that each trader's approach will probably differ from all others. There will not be a crowd chasing the same entry and exit points." -Jones

3)"Adding these indicators to the Basic Model lets the trader build his own unique model; one based on market understanding; i.e. one designed by and for the specific purposes of that individual.

1) Structure of the Overlay Demand Curve.
2) Relative behavior of shorter vs longer Overlays.
3) Effect of the commercials.
4) Internal trends in a bracket.
5) Volume activity.
6) Volatility.
7) Major and minor auctions.
8) Value area behavior.
9) Volume above and below the value area.
10) Quadrant of close.
11) Relative volume, quadrant to quadrant.
12) How well trade is being facilitated.
13) Modify the Basic Model initial conditions.

Are these thirteen elements all? Of course not. Just as a good algebraist can develop 'what if' problems in algebra; so can one who understands the market develop 'what if' queries in the market. As market understanding grows, all the elements become melded into the whole.

It is a step by step process to include element after element into one's analysis. At the end, the person who truly understands the market, understands and integrates all the elements as needed. That person is described in one phrase "he trades without stops". -Jones
Markets are not efficient, rather they are effective - Jones
  • #546
  • Edited 1:30am Jan 8, 2016 1:17am | Edited 1:30am
Quoting mzvega
{quote} I believe I mentioned that I don't usually use stops, and if I do it's because I'm sleeping and then later removed. The basic model suggests 1 tick below the oct, I believe Evak recommend 2-3 time the VTY. I take myself out if I get a "close" below the oct or the UQ dpending on how strong bias is from my analysis. I don't look at the "candles", the PA fakes me out. It looks scary seeing red candles, by removing the "fear" element, I'm less emotional. I take the emotional drama away, all I see is where my risk tolerance lies, nothing more....
Thank you. Ok then I will work on my analysis skills.

Would you trade 20day bracket breakouts with trending 10 and 5? Or wait for 5 day bracket after the 20 day breakout? For example there is a 20day test CADCHF:

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Iam not shure how to deal with situations like this. I prefer 5day bracket breakouts. It seems to me that Iam already missed the 5 day bracket chance and that thier might be a chance that the 5 and 10 day move is over (exhaustion or end). So for me I would wait until a 5 day pause sets in.

greetings
C
  • #547
  • Jan 8, 2016 3:44am Jan 8, 2016 3:44am
A bit belated but here it goes. Happy new year !

Just to add to the recent discussion address to Christ.

- for stops use 2 or 2.5xof 20day vty. That's it. Start with 2x only and adjust to 2.5x if you think a particular pair requires it.
- whatever TF overlay you use may not matter much as long as you know the break point. If the larger timeframe wider stops is the reason why you prefer to choose the lower timeframe then stick to 2x 20day vty as stops irregardless of timeframe.
- With regards to Responsive trading. Again in most cases avoidance is a better cure; but if you have spot a opportunity trade, a simple rule is to only trade after a rejection of high or low(bounce) occurs during NY session. Then enter a trade only after price have settle to a intraday pause then entry on the break of the pause. The octant rule does not apply here as we will still stick to 2xvty stops.

Claudia tks for the regular excerpt from materials for Cisco. Always good for a reminder notes when i too lazy to look up

good day
  • #548
  • Jan 8, 2016 8:55am Jan 8, 2016 8:55am
Quoting Evak
A bit belated but here it goes. Happy new year ! Just to add to the recent discussion address to Christ. - for stops use 2 or 2.5xof 20day vty. That's it. Start with 2x only and adjust to 2.5x if you think a particular pair requires it. - whatever TF overlay you use may not matter much as long as you know the break point. If the larger timeframe wider stops is the reason why you prefer to choose the lower timeframe then stick to 2x 20day vty as stops irregardless of timeframe. - With regards to Responsive trading. Again in most cases avoidance is...
Hey Evak!

nice to see you here again! Happy new year. Thank you for the advice with the 20d vty. I will do that. I know experts dont realy need a stop, but Iam not an expert so I need one (like a airback for bad analysis).

greetings
C
  • #549
  • Edited 11:57am Jan 8, 2016 11:44am | Edited 11:57am
Quoting dljonesFan
{quote} Thank you. Ok then I will work on my analysis skills. Would you trade 20day bracket breakouts with trending 10 and 5? Or wait for 5 day bracket after the 20 day breakout? For example there is a 20day test CADCHF: {image} Iam not shure how to deal with situations like this. I prefer 5day bracket breakouts. It seems to me that Iam already missed the 5 day bracket chance and that thier might be a chance that the 5 and 10 day move is over (exhaustion or end). So for me I would wait until a 5 day pause sets in. greetings C
The 20day has been trending for 22days and started bracketing yesterday, the 15day was trending for about 20days, but has been bracketing for 2 days. It looks like the other TF are testing for end of LTF trend. The LTF have stopped trending. A possible pause. I'd be leary of trading 5 as the LTf has slowed. Since this is not a pair I track in my database, I dont have any daily flow data, so my analysis is somewhat limited. You didnt give me any data what so ever. I cant just look at a chart, and decide what I would do, all my decisions are driven by the data I dont/wouldnt trade the chart with looking at the data first

My indicator says not bracketing 20day, but my data says it started bracketing yesterday, maybe its a timezone thing, or just mislabeling. But I don't trade without looking at the data first...... I often see changes in the data before, I see those changes reflected in the chart. Jones mentioned something about not trading "screen moves"
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Markets are not efficient, rather they are effective - Jones
  • #550
  • Jan 8, 2016 12:23pm Jan 8, 2016 12:23pm
Quoting Evak
A bit belated but here it goes. Happy new year ! Just to add to the recent discussion address to Christ. - for stops use 2 or 2.5xof 20day vty. That's it. Start with 2x only and adjust to 2.5x if you think a particular pair requires it. - whatever TF overlay you use may not matter much as long as you know the break point. If the larger timeframe wider stops is the reason why you prefer to choose the lower timeframe then stick to 2x 20day vty as stops irregardless of timeframe. - With regards to Responsive trading. Again in most cases avoidance is...
Happy New Year to you too!
It's great to see you're no longer "Missing in Action"! You're excellent chart examples and advice are greatly missed in your absences. So, it's always a privilege when you can find the time to post! The site has been offline for awhile, it did this a few times in the past, so I haven't panicked quite just yet. It would be devastating to lose such a great resource. I'm glad I saved a copy of everything, last time I panicked
Markets are not efficient, rather they are effective - Jones
  • #551
  • Jan 8, 2016 1:05pm Jan 8, 2016 1:05pm
Quote
So, 1 day's worth of data is not an accurate depiction of actual demand. You need several days. We use the daily data for our analysis, not for trading. We use a min. of 3 days of data to get a accurate picture of demand. It's always better to look at the 3day or 5day for guidance, not the daily profile.


Hello,

This is not true. Overlay Demand Curve shows value from a specific context made by different trading horizons; Short TF, Medium TF, Long TF

Traders can get a clear idea of value by using the price (and so the value) within those different trading horizons. What does matter is having a way to contextualize a givern market's information.

You can definitely use ODC for trading micro-TF like 30 sec or 5min as long as you're capable to manage the developpement of value within different trading horizons. In this example Short TF would be 5 minutes, Medium TF 15minutes, Long TF 25 minutes and very long TF 1hour) and it would be as efficient as "traditional" ODC. 1-day demand may not useful according to a specific trading horizon...but for another one it would be very relevant. Also a 15-minutes profile could be gold for a micro trading horizon.

Don't forget that Short-term traders and long-term traders are concept which refer to a trading horizon, not a trading timeframe. Traders who keep trades for a 3 weeks are SHORT-TERM traders for a monthly chart's trader. As a trader you have to deal with your chart(=timeframe) but also with the longer timeframe to know where the Long-term traders are most likely to take positions and reverse the market.

On the other hand as a daytrader (who keeps trades for hours) you will be referred as a Long-term trader for a scalper.

Auction Market Theory works on EVERY TF. There is an auction process on a 5 sec charts as a monthly chart!
  • #552
  • Edited 4:28pm Jan 8, 2016 3:07pm | Edited 4:28pm
Quoting Volk
{quote} Hello, This is not true. Overlay Demand Curve shows value from a specific context made by different trading horizons; Short TF, Medium TF, Long TF Traders can get a clear idea of value by using the price (and so the value) within those different trading horizons.
If you took the time to read the thread, I asked that you provide some sort of "published reference" To support your opinions. Don L. Jones invented the ODC and Auction Market Value Theory (check the trademarks & copyrights). The people who participate here, have read the material. Everything I post here comes from a published resource. Provide us with a published reference, to your claims and then we can debate facts. The topic of this thread is based on Jones's Book VBPT (post#1) and his research "Auction Market Value Theory", you might try actually reading the material before trying to debate...... Until then...........

Placing an indicator on a 5 minute chart does not make what you do "Auction Market Value Theory", it's just a gross misuse of a tool........

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Markets are not efficient, rather they are effective - Jones
  • #553
  • Jan 8, 2016 4:25pm Jan 8, 2016 4:25pm
I have read Jones Book several times and this is exactly why I wrote this.

If you understand the meaning of Auction Process then you must agree that it exists on every timeframe. On your first post you wrote this:

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which is definitely not true as Jones clearly considers Daytrading as viable as you can read here : ftp://80.240.216.180/Transmission/%D...C11/128dev.pdf and here ftp://80.240.216.180/Transmission/%D...06/112AUCT.pdf

Tom Alexander, Steidlmayer and Dalton explain many times that Auction Market Theory occurs in all timeframes. Jones research is based on AMT.

You must take in account the fact that the main books and papers you read about AMT were written 30 or 20 years ago and it's huge in terms of trading habits.

For instance, in the 60's the average duration of a trade was 8 years.

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http://www.forbes.com/sites/greatspe...er-of-trading/

Today, it's about 20 seconds:

Michael Hudson, a former Wall Street economist at Chase Manhattan Bank who also helped establish the world’s first sovereign debt fund recently said: "Take any stock in the United States. The average time in which you hold a stock is – it's gone up from 20 seconds to 22 seconds in the last year

http://www.telegraph.co.uk/finance/p...2-seconds.html


The meaning of "Short-Term" changes over time. Today, holding a trade for some days is a kind of long term trading which was not the case in the 1980 when Steidlmayer developed his theory. Moreover, a short-term trader in 1980 was a long-term trader in 1960 or 1950...

This is the proof that "Short-Term" and "Long-term" are purely subjective depending trading habits of a given period in trading history.
  • #554
  • Edited 7:11pm Jan 8, 2016 5:07pm | Edited 7:11pm
Quoting Volk
I have read Jones Book several times and this is exactly why I wrote this. If you understand the meaning of Auction Process then you must agree that it exists on every timeframe. On your first post you wrote this: {image} which is definitely not true as Jones clearly considers Daytrading as viable as you can read here : ftp://80.240.216.180/Transmission/%D...C11/128dev.pdf and here ftp://80.240.216.180/Transmission/%D...06/112AUCT.pdf...
If you read the post correctly it say's CAPITAL MARKET THEORY IS A METHODOLOGY USED BY LONG TERM INVESTORS. THE CONCEPT & METHODOLOGY WASN'T INTENDED TO BE USED TO TRADE THE "INTRA-DAY TIME FRAME.

All my post states is that "Auction Market Value Theory" is not "Capital Market Theory". (you really are reaching.......)

If you actually read the material you would know what actually defines short Term from long term in regards to Auction Market Analysis

That is not Proof of how Auction Market Analysis defines short term from long term

That article says nothing about the ODC......

You lack of knowledge "Proves" you haven't read his book several times, it proves you haven't even read it once........
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Markets are not efficient, rather they are effective - Jones
  • #555
  • Jan 8, 2016 6:21pm Jan 8, 2016 6:21pm
Quoting Volk
You must take in account the fact that the main books and papers you read about AMT were written 30 or 20 years ago and it's huge in terms of trading habits.
If you actually read the thread or kept up to date with Jones's work, he published work as late as 2007, 2009, 2010. A far cry from 30 years ago.......check the dates
If you read the thread you would have known this.
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Markets are not efficient, rather they are effective - Jones
  • #556
  • Edited 9:32pm Jan 8, 2016 9:21pm | Edited 9:32pm
Quoting mzvega
{quote} If you read the post correctly it say's CAPITAL MARKET THEORY IS A METHODOLOGY USED BY LONG TERM INVESTORS. THE CONCEPT & METHODOLOGY WASN'T INTENDED TO BE USED TO TRADE THE "INTRA-DAY TIME FRAME. All my post states is that "Auction Market Value Theory" is not "Capital Market Theory". (you really are reaching.......) If you actually read the material you would know what actually defines short Term from long term in regards to Auction Market Analysis That is not Proof of how Auction Market Analysis defines short term from long term...
Hello.

You wrote that Volume Profile and by extention Market Profile belong to Capital Market Theory which is a long-term methodology. However you can definitely use Market Profile or Volume Profile for short-term, scalping or even HFT so you're wrong about that. In the articles I posted above Jones explain that (daily) market profile is going to be used to get an intraday bias while ODC show the long-term picture and this is exactly the missing link.

A given profile alone is not that useful. What we need is a bigger view of the auction process and this is why ODC is interesting because it provides context. The issue for a daily profile user is exactly the same than for a 15minutes profile user or a 5 minutes profile user. In all cases using just a profile or two doesn't allow the trader to get the proper knowledge of the market's context. You always need context. I think you agree with that.

How can a 15-min profile user get the context? By using ODC with 3,5,10,20 days? Not at all, it would not be that relevant. He had better reducing the timeframes in order to get a relevant context related to its 15minutes profile.

Quote
If you actually read the thread or kept up to date with Jones's work, he published work as late as 2007, 2009, 2010. A far cry from 30 years ago.......check the dates
If you read the thread you would have known this.


I never say that he has not published anything since the 80's. I say that the core of the research on Auction Market Theory by Jones, Steidlmayer, Alexander, Borsellino, Cronchian, Dalton, Mersh is based on Daily Market Profile for historical reason.

The meaning of Short-term and long-term has changed overtime. Nowaydays you can see traders using Auction Market Theory concepts: ODC, Market Profile, Volume Profile, Bid/Ask Profile on very short timeframes.

AMT exists on all TF, therefore you can use any concepts/methodology associated you want! Some example below:

Market Delta Strategy guide's:

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Jim Dalton's Website:

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People mostly talk about daily profile because it's the historical profile. So when Jones (or someonelse) write about Auction Market Theory they are likely to take the daily profile in consideration and this is why there is nothing surprising about an ODC model based on the daily profile BUT it doesn't mean you can't apply those concepts on other timeframes.

In the series of videos called "Field of the vision" Dalton explicitely refers to 5-minutes Market Profile. You may want to check this 4 hours video course on Auction Market Theory:
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So which context is going to be relevant for a 5 minutes profile? 1,3,5,10,20 days? No. Something like 10, 15, 30, 60 minutes would better.

Just give a shot next week on EURUSD and GBPUSD (as spread allows Intraday trading) you will be surprised that ODC or any other AMT associated concepts works very well.



P.S: You have missed the most important thing in my previous post:


For instance, in the 60's the average duration of a trade was 8 years.
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http://www.forbes.com/sites/greatspe...er-of-trading/

Today, it's about 20 seconds:

Michael Hudson, a former Wall Street economist at Chase Manhattan Bank who also helped establish the world’s first sovereign debt fund recently said: "Take any stock in the United States. The average time in which you hold a stock is – it's gone up from 20 seconds to 22 seconds in the last year

http://www.telegraph.co.uk/finance/p...2-seconds.html


The meaning of "Short-Term" changes over time. Today, holding a trade for some days is a kind of long term trading which was not the case in the 1980 when Steidlmayer developed his theory. Moreover, a short-term trader in 1980 was a long-term trader in 1960 or 1950...

This is the proof that "Short-Term" and "Long-term" are purely subjective depending trading habits of a given period in trading history.


Short-term and Long-term are just words which change over time, do not forget that!
  • #557
  • Edited 1:57am Jan 9, 2016 1:42am | Edited 1:57am
Quoting Volk
{quote} Hello. You wrote that Volume Profile and by extention Market Profile belong to Capital Market Theory which is a long-term methodology. However you can definitely use Market Profile or Volume Profile for short-term, scalping or even HFT so you're wrong about that. In the articles I posted above Jones explain that (daily) market profile is going to be used to get an intraday bias while ODC show the long-term picture and this is exactly the missing link. A given profile alone is not that useful. What we need is a bigger view of the auction...
I see youre bringing that same old tired Volume profile argument to my thread again, (Your profile and trade explorers give you away). A volume profile is not a market profile. Volume profile uses linear "price to price" volume data, not an allowed practice in auction market theory.

As in our last encounter you used steildlmayer as of some kind of proof a volume profile is the same thing as a MP. And again if you actually read steildlmayers book, He uses VOLUME @ TIME, not a volume at price histogram

Steildlmayer on Markets: Trading with Market profile 2nd edition
Chapter 7 Page 106

Understanding Volume @ Time
When looking at volume, the most forward-looking and revolutionary tool for Market Profile users is volume @ time. Steidlmayer Software developed this application in 1998 and it was integrated into Capflow32.

We took the online volume from stock exchanges, electronic future exchanges, and open outcry exchanges (when available) and integrated it into the Market Profile. This allows for the creation of an entirely new database, a volume database. Now people can trade a price database (Market Profile), a volume database, or a combination of the two.

How does it work? The price and volume information is recorded as it accumulates over time. Look at the industry standard Market Profile, which is half-hour data, and record the volume and price range for each half-hour segment. Compare that half-hours range (the existing) to the previous and determine whether it rotated up (took out the high of the previous half-hour but not the low), rotated down (took out the previous half-hours low but not the high), was an inside half-hour (did not take out the previous half-hours high or low), or was an outside half-hour (took out the previous half-hours high and low).

Volume @ time analysis throws out the volume information for inside and outside half-hours. Volume for inside and outside half-hour bars is not calculated because direction is not assignable..........

*(my note) It does not say "accumulates at price", and volume is defined as contractual volume, not the volume of ticks.

MP uses 2 dimensional price*time format, steildlymayer uses a 2 dimensional volume*time format.
A volume profile uses a 1 dimensional volume*price format (Gaussian). Because it uses linear price data, it is not market generated info, therefore not used in auction market analysis.

Quoting Volk
"You wrote that Volume Profile and by extention Market Profile belong to Capital Market Theory which is a long-term methodology" .


Because you dont know the difference between a MP and a VP, YOU'RE making the extension.
I said volume profile; YOU extended it to include MP.

MP is not a VP. Market Profile methodology and Daltons website are not the topic of the thread, this thread has nothing to do with either MP or VP. The thread is about Auction Market Value Analytics.

I see youre the same "multiple user name" from France that continues to spam my thread, it cant be a coincidence everyone on my ignore list comes from France.
You still cant provide a published reference from Steildlmayer, Dalton, Alexander, or Jones, that says they use a volume profile, or that a VP is the same as MP.

Evak was kind enough to post pages from steildlmayers capflow32 software manual. He spells it out in plain English He does not use a volume at price distribution; he uses volume at TIME which sits horizontally, not vertically. You got it twisted! You cant continue to say he uses a volume profile, when his book and software manual clearly says he doesnt. You got it twisted!

THIS IS NOT A MARKET PROFILE THREAD!
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Markets are not efficient, rather they are effective - Jones
  • #558
  • Edited 5:04am Jan 9, 2016 4:29am | Edited 5:04am
Quoting Volk
{quote} Hello. You wrote that Volume Profile and by extention Market Profile belong to Capital Market Theory which is a long-term methodology. However you can definitely use Market Profile or Volume Profile for short-term, scalping or even HFT so you're wrong about that. In the articles I posted above Jones explain that (daily) market profile is going to be used to get an intraday bias while ODC show the long-term picture and this is exactly the missing link. A given profile alone is not that useful. What we need is a bigger view of the auction...
Bonjour Volk,

first this thread is only about the Auction Market Theory developed by Jones. Please respect that.
We do not discuss other MP methods here. And we will protect our community by not responsing to some questions that make no sense.

Your Market Delta FOOTPRINT chart is not a meta profile chart and has nothing to do with the AMT.
https://www.marketdelta.com/learn/footprint
If you realy have read the VBPT book by Jones then look at page 65 again.

Yes, Jones also offer a day trading course at his website but this day trading course is not discribed in his VBPT book and is not a part of this thread here.

We are focusing here on a longer time frame. If you want to share your wisdom about that method or want to learn something about AMT you can stay here. Please respect that or your questions will be ignored. We dont have the time here to deal with nonsense.

Sorry for my harsh words, but I realy want to learn here something and you are taking the time of Mzvega with these questions.

greetings
C
  • #559
  • Edited 11:31pm Jan 10, 2016 11:50am | Edited 11:31pm

Auction Markets

From Market Profile to Value Analytics: January 11, 2008


Donald L. Jones


CISCO Futures

January 2008


The CBOT product announcement of Market Profile in 1985 revolutionized market analysis. The focus on intra-day market behavior offered more information than ever before possible. Couched in the terms of pattern recognition, the CBOT Market Profile Manual suggested that analysis proceeded from first recognizing the type of trading day. Day type was the base, the indicator of who was in control of the market; short or long term traders. Unfortunately, the number of day types varies with the author and the same author might cite a different number of day types in different publications.

At CISCO we could not make pattern recognition work for us. In exploring alternatives we found that it was very dicey to put too much faith in a single day's profile. In our book, Value Based Power Trading, 1993, we noted that even a market in a solid trend had day to day variations that on a single day basis made the trend unrecognizable. Broadening that concept led to the Three Day Rule (2007). That rule, simply stated, says that market condition cannot be reliably found from a single day's data. Three days of profiles together offers a much more reliable measure of market condition. That missing link in profile analysis led to our work on value based analyses, starting with the Overlay Demand Curve (1988). (Dates such as (2007) refer to entries on the References page, which are ordered by date)

Background on Market Profile

Market Profile (tm) appeared in 1985 as a product of the Chicago Board of Trade that "integrates price, time and volume". It incorporates real time ticks to generate a 'profile graphic' of market activity displayed in a 1/2 hour bar basis (TPO's). This 'profile' often forms a bell shaped distribution when plotted as a price-activity graphic.

The accompanying CBOT Market Profile Manual, 1985 (MPM 85), explains the uses of the profile in terms of analyzing the bell-shaped graphic. End of day cleared data, the Liquidity Data Bank (LDB), breaks down a day by cleared volume by type of member to show who on the floor is active at what price levels. LDB voume data is the source of profile value (profile value area).

The bell-shaped price-activity chart's similarity to a gaussian distribution* is used to draw inferences about the market such as the type of day (2 listed), (day) condition of the market (trend or balance) and other profile dynamics. Value as found from the cleared volume in the LDB, is the range of the first standard deviation of the volume profile.

Several 'reference points' are identified, more particularly in Market Profile Manual, 1991 (MPM 91). These reference points, again day timeframe oriented, explain certain elements of a market's behavior such as trade facilitation, initial balance, range extension, tails, who is most active in the value area and attempted direction. The book, Mind Over Markets, 1990, Dalton, et. al., (MOM), addresses reference points in a somewhat more organized manner.

Reference points read from the bell shaped price-activity curve, including day type, are prone to more than one interpretation. The goal is to identify the source of market control: short timeframe traders like the locals must trade to make a living and the long timeframe (other) traders are looking for bargains and will not trade otherwise. The interpretations are often judgement calls, depending upon ones recognition of the market patterns. Market Profile Manual, 1985, states that it will take six months to a year to gain the expertise required to recognize and interpret the various market forms. In sum, the user is expected to become adept at pattern recognition.

Comment:
The basic premise of market profile, it's foundation, is that the bell shaped price-volume curve from the LDB volume and the price-activity curve from TPO's forms gaussian distributions. A gaussian distribution has a well defined form, the bell shape. Two parameters (mean and standard deviation) define all points on the curve. Experimentally, for a gaussian distribution, both the mean and standard deviation can be found from the data. The identical formula can be applied to non-gaussian data, but, of course, the interpretations are meaningless. One problem with market profile is that there is little, if any discussion about data validity; does the distribution at hand fit the bell shape model and what to do if the bell shape is not present that day or the day shows both bell parts and non-bell shaped areas. Tests of the quality of fit to a gaussian curve are available in the statistics literature (e.g. chi-square) but not mentioned in CBOT 1985, CBOT 1991 or MOM. A distribution may have a bell shape and still not be gaussian. That would mean that at the very least, value obtained is questionable.

If the price-volume curve is not bell shaped at all, it is obviously incorrect to apply gaussian statistical analyses. Since bell shaped curves occur in balanced markets (and probably only in balances), it is important to have tools to identifiy balance. None are offered in the Market Profile Manuals or MOM.
continued..............................

Auction Markets
From Market Profile to Value Analytics: January 11, 2008
Donald L. Jones
CISCO Futures
January 2008

*"The bell-shaped price-activity chart's similarity to a gaussian distribution"

Just because a profile "looks similar" to a gaussian distribution does not mean it "is" a gaussian distribution

similar
/ˈsɪmɪlə/adjective
1. showing resemblance in qualities, characteristics, or appearance; alike but not identical

similarity
[sim-uh-lar-i-tee] noun, plural similarities.
1. the state of being similar; likeness; resemblance.
2. an aspect, trait, or feature like or resembling another

"Gaussian Statistical Analysis" in trading is a form of "technical Analysis" not "Auction Market Analysis"

Secondly, the profile methodology presented is essentially day timeframe. 'Market condition' is used to describe the current day, not the multi-day market environment. Simple observation of a string of profile days shows the wide variation of shapes day-to-day. If a trader is to judge what a change in the distribution's form means there must be guidelines. The difficulty, of course, is the almost infinite variations in profile shape possible day-to-day or even intra-day.

The concept of finding value for the day from a gaussian distribution was a great leap in market analysis. But not every day can be so analyzed. It is unfortunate that no discussion is made of these situations. For example, what should the trader do if yesterday was gaussian, but today is not; but the market is still not trending?

Lastly, the patterns that trading decisions are based on are often poorly defined. Identifying 'Day Type' illustrates the recognition problem. Day Type is a starting point in the Market Profile scheme for market analysis. A day's analysis begins by recognizing the profile form (day type) which tells who is controlling the action (short time frame or long (other) time frame).

In the words of CBOT Market Profile, 1991, pg 4
...the market has only a finite number of behavior patterns and that finite number is universal from market to market.

and from Mind Over Markets, pg 19:
...Market Profile as a whole tends to fall into readable patterns in the day timeframe, determined by the degree of involvement of the other timeframe participant. These patterns, when properly identified, can increase the day trader's success, as well as provide information regarding what the market is trying to do in the longer term.

CBOT Market Profile, 1985, listed two day types. CBOT Market Profile, 1991 has four. Steidlmayer on Markets, 1989, posts six. MOM, 1990, has nine. Steidlmayer on Markets, 2003, gives five. Markets in Profile, 2007, does not have an index item for Day Type!

The primary writers in the area do not agree with each other or even themselves on the number of basic day types that exist. But day type presumably shows the areas of dominance of the trader types (short and long timeframe) and so is the starting point for profile analysis. How can the student be expected to learn holistic profile market analysis if the guidelines are so variable and so poorly defined?

A real danger is that in spite of the revolution in market analysis effected by market profile methodology, it leads traders to expect too much from each piece of data. All traders want to take a reference point, say value area or initial balance, and predict the coming market activity; or to be able to compare one day's value with the next to explain and project the market's behavior.

If we could interpret todays market's, as demonstrated by Steidlmayer in CBOT Market Profile 1991, we would hold the keys to untold wealth. Steidlmayer was in a unique position of personally knowing the players on the floor as well as being an astute observer of market behavior. This is a far cry from the situation of the normal trader. Reality says "you are in a complex environment and it is highly unlikely that knowledge of any one or two market elements will insure your success". It is experimentally apparent that one day's data is inadequate to measure Market Condition. Further, since market shapes run the gamut from well developed bells to completely directional straight lines, there should be some measure of where the crossover occurs between distributions amenable to value analysis and those that are not; if one is to use pattern recognition.

Continued...............

Auction Markets
From Market Profile to Value Analytics: January 11, 2008
Donald L. Jones
CISCO Futures
January 2008
Markets are not efficient, rather they are effective - Jones
  • #560
  • Jan 10, 2016 11:24pm Jan 10, 2016 11:24pm
Background for Value Based Analyses
At CISCO we initially tried the holism path and found it impossible to read a market objectively. Starting with a profile, we first had trouble determining the day type consistently. In some cases day type was clear, others, not at all. Without a day type upon which to base our analysis, we were stymied.

Early on we wrote a computer program that would input a day's price - TPO data and output day type. This was a surprisingly difficult program because there are no sharp demarcations between day types. Our expectation was that once we knew the day type unequivocally we would find statistical agreement between day type and market behavior the next day. We found no aid in having day type, so far as trading the next day was concerned. (1986, CISCO internal report)

So, by 1987 our path diverged from holism to objectivity.First we found that value area, by the CBOT definition, could not be calculated for any but CBOT markets. we researched the Tick-TPO, or Meta-Profile value method and that is now the standard for the industry.

Next we realized that one day's profile could be understood only within the context of the market as a whole, i.e. the (multi-day) Market Condition. That is, Market Condition to us means the collective behavior of several days (minimum of three). That led us to develop the Overlay Demand Curve to determine whether the market is in balance or not. The critical point here is that the reference points used in the holistic interpretation, such as value area, are NOT valid unless the market is stable, i.e. in balance. (1988)

We also examined known trends for day-to-day serial correlation. That is, in a long trend is the trend apparent day to day? We found no serial correlation from one day to the next, some in day to second day and and good correlation basis day to third day. These findings confirm our later measures of balance periods requiring three days to define a balance. This study is on pages 19 - 23 of our book, Value Based Power Trading, (1993)

Back in 1973 when we were beginning to manage money, we ran into the Efficient Market Hypothesis. This theory, championed by the Chicago School of Economics, inferred that all technical trading models were based on invalid principles. If true, our trading model was doomed. We reasoned that if we could find any predictablilty in market data, that would invalidate the Hypothesis. We showed that in a mature futures contract (front month at least 60 days old) a new contract high would be followed by a yet higher high within the next ten days with an 82 percent probablilty. Mission accomplished, Efficient Market Hypothesis disproved. Work by others many years later confirmed our finding. (1973)

Auction Market Value Theory is, we believe, the first comprehensive theory of auction markets. Economists for long have held to the "Sharpe-Markowitz gaussian distribution theory" for equities (Capital Market Theory, or CAPM). Their idea that the market was an equilibrium structure has proved wrong. Steidlmayer and Koy, Markets and Market Logic, brought forth many elegant insights about markets and how they function.But there is no objective theory in their work. Possibly the most comprehensive study of problems with CAPM is Why Stock Markets Crash, by Sornette. That study gave us the courage to develop an axiom based theory. (2005)

A recurring theme in CISCO research is the validity of the data. In 1999 - 2000 we developed the Advice Engine, a daily listing of all markets in balance, with periods of 5, 10, 15 and 20 days. To merit inclusion, there has to be both a 5 and a 10 day balance. This list of balanced markets (end of day) is for trade guidance the next day. The report is in two parts: Part 1 lists all markets in balance at end of day. A sub Part 1, the Select Table, are those futures in Part 1 that a CISCO proprietary algorithm chooses because they are deemed to have have better potential. Part 2 lists the breakouts of the postings of the previous day. CISCO maintains the daily Advice Engine Report in a research database. (2002)

One of the first findings to come from Auction Market Value Theory was The Market Unit, a detailed study of the market cycle, balance, trend, balance, trend, etc. There it was shown that a balance - trend - balance cycle could be four days, seventeen days or any other period. There is no regularity to the periods. a first conclusion is that the standard moving average smoothing is just wrong because there is no internal cycle to smooth. Newer version above: Financial Markets Auction Market Value Theory. (2005)

Value Analytics offers a major change to profile analysis. Heretofore profile analysis was principally day oriented.Now profile reference points are treated as flow variables; how they change over the last three days is more important than their latest day value. How can this be? It is simply that short-timeframe, intra-day situations can quickly develop and as quickly fade away; not affecting the overall market condition at all. A blip; here today, gone tomorrow. (2007) .

The common thread running through all our studies is validity of the data. If trading is to be a science, the data used in the analyses must be valid. The original Market Profile analyses, and still today, treats any calculated value area as a valid measure of value; with further analyses proceeding from that assumption. But our work on Market Condition has shown that a one day snapshot profile may not be representative of a market and often is not. Consequently, relying on simple reference points (point of control, value area) can give a totally misleading read of a market. If your data is not valid, how can you possibly succeed by following it?...............................

From Market Profile to Value Analytics: January 11, 2008
Donald L. Jones
CISCO Futures
January 2008
Markets are not efficient, rather they are effective - Jones
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