I'm wondering if anyone is familiar with a Dynamic Market profile from Market Analyst? And if any other software providers offer it?
Basically it operates the same as a normal Market profile using TPC's, however instead of mapping them on a distribution curve, it displays them like bollinger bands and keeps a running total of the market profile over x amount of bars ideally during an intra day session.
Are you affiliated in any way with this vendor? I notice you are a profile vendor yourself.
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This is what I would describe as a "rolling" or "moving" profile. Just as a 20-period moving average on bar X considers the values of bars X-20 through X, so a "dynamic MP" with a period of 20 would compute the mode and standard deviation values of the bars X-20 through X.
A developing value area as seen in most MP packages often will reset at the beginning of the next day/week/etc. This does not, but it is instead a moving window, that never resets. It's not rocket science, and it can be computed relatively easily in code with most existing platforms.
The advantage is that much like a moving average, it considers more recent data, and discards data older than what you choose to view. For example, using a 120-minute period dynamic MP (say, a 5-minute bar period and using the last 24 bars), in the afternoon, the morning's action is no longer part of the computation of value.
During the day I will often quickly draw a profile over a period that does not encompass the whole day (the low of the day to the current point, for example). This is truly dynamic because it is not a fixed period of time, but over a particular range that I choose on the spot.
Late in the video the speaker talks about strategies and they tended to be along the "if X do Y" lines. One of the benefits of using a profile is that it allows a person to see areas of balance more clearly. A rolling profile (as in this video) does not provide that, because the profiles are still based on a fixed time period, and not on the actual market structure. If you'll notice in the video, on several charts the stock is spending several consecutive days in the 3rd standard deviation zone. Well, this means nothing (that it's the 3rd SD zone), because the market at that point is clearly not in balance, clearly not distributing normally, and so the statistical significance of a 3rd SD becomes meaningless at that point (because it's not really a 3rd SD due to the fact that the distribution is not normal).
Attempting to use profiling concepts using standard braindead TA techniques is what the second half of the video is mostly about (buy a breakout of upper band, sell if X happens, etc.). Several methods are shown, and he attempts to work out a profitable system, but it seems very curve-fitting-like to me, and it's a shame that this is even presented, because it's not how profiling is used at its best.
A day's profile is significant, because there was a beginning and end to the trading. Same with a week. A month, while arbitrary in many ways, is also useful, and a quarter is quite useful due to the way the financial system is set up. Using a rolling period as in this video can have tremendous value, I think. But being able to see the market structure on whatever time frame you choose, and then to understand that, carries a whole lot more value than trying to trade MP like it's a bollinger band. The tool itself though, IMO, can be very valuable, and is a simple concept that is not too difficult to implement.
edit: I see so many vendors selling software and services relating to market/volume profile. It's all good for them, but my concern is that those who buy these tools have little understanding of the core concepts underlying what auction theory is all about, and want to be able to have something plotted on a chart for them, and to not have to think too much, and to "buy here when X happens." If you really get what this is about, you really don't want someone else drawing a line for you. At the end of the day, a discretionary trader himself is the most important part of the equation, regardless of what tool he uses.
Last edited by josh; July 6th, 2014 at 07:27 PM.
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