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Behind Market Profile
Updated: Views / Replies:3,066 / 19
Created: by isla Attachments:2

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Behind Market Profile

  #11 (permalink)
Trading for Fun
Scottsdale
 
Futures Experience: Intermediate
Platform: ThinkorSwim
Favorite Futures: Stocks
 
Posts: 120 since Feb 2012
Thanks: 33 given, 96 received


isla View Post
I try to take practical approach and this is why asked my original question. I understand that if you see everything through auction theory lenses all can be fit into it's framework (at least after the fact). If it is similar to price action principles in a way that it suggest positive expectancy outcomes, then in my view it's just gaming randomness and it's not for me.

Please correct me if I'm wrong. I'm only expressing my opinion not implying someone is incorrect.

That's why you don't use it alone. It's a tool to be used in conjunction with other tools.

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  #12 (permalink)
Elite Member
London/UK
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: Optimus/Rithmic
Favorite Futures: ES, 6E, FESX
 
Posts: 103 since Jun 2012
Thanks: 76 given, 154 received


Rock Sexton View Post
That's why you don't use it alone. It's a tool to be used in conjunction with other tools.

I appreciate your comment.

Do you use it in your trading? What value do you extract from it?

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  #13 (permalink)
Elite Member
Quebec
 
Futures Experience: Intermediate
Platform: NinjaTrader wt Rancho Dinero's profiling tools
Broker/Data: Stage 5 trading/AMP/CQG
Favorite Futures: ES, NQ, YM
 
trendisyourfriend's Avatar
 
Posts: 3,692 since Oct 2009
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I think you can find some answers to your questions here:

View the various videos on this page.

The Market Profile

If you want to go deeper then i would recommend this site:
http://www.leprivatebanker.com/


Last edited by trendisyourfriend; September 6th, 2014 at 09:26 PM.
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  #14 (permalink)
Trading for Fun
Scottsdale
 
Futures Experience: Intermediate
Platform: ThinkorSwim
Favorite Futures: Stocks
 
Posts: 120 since Feb 2012
Thanks: 33 given, 96 received


isla View Post
I appreciate your comment.

Do you use it in your trading? What value do you extract from it?

I actually use Volume Profile instead of Market Profile. It helps me understand the supply/demand curve of a stock's movement over a particular time frame.

I don't care about intrinsic values of stocks, the news, or any other nonsense. All I'm looking for is an imbalance in that curve and take a trade in the direction of the inevitable correction back to "value" or the "auction". Typically this helps me identify trades at the extremes where-in keeping my reward far more favorable than my risk.

IMO it's strictly math. Pretty much everything else is "speculative" where traders are hoping other traders are thinking the same thing they are in order to bring enough volume (force) to push the stock in a direction that's favorable.

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  #15 (permalink)
Elite Member
London/UK
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: Optimus/Rithmic
Favorite Futures: ES, 6E, FESX
 
Posts: 103 since Jun 2012
Thanks: 76 given, 154 received


Rock Sexton View Post
I actually use Volume Profile instead of Market Profile. It helps me understand the supply/demand curve of a stock's movement over a particular time frame.

I don't care about intrinsic values of stocks, the news, or any other nonsense. All I'm looking for is an imbalance in that curve and take a trade in the direction of the inevitable correction back to "value" or the "auction". Typically this helps me identify trades at the extremes where-in keeping my reward far more favorable than my risk.

IMO it's strictly math. Pretty much everything else is "speculative" where traders are hoping other traders are thinking the same thing they are in order to bring enough volume (force) to push the stock in a direction that's favorable.

Thank you!

So I guess statistical distribution is the first answer to the "edge" question.

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  #16 (permalink)
Elite Member
London/UK
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: Optimus/Rithmic
Favorite Futures: ES, 6E, FESX
 
Posts: 103 since Jun 2012
Thanks: 76 given, 154 received

There were couple of interesting ideas in the latest post by Brett Steenbarger which I thought related to my question about auction theory: TraderFeed: Prediction and Understanding in Generating Market Returns

Does auction theory help to predict market moves?
"Prediction is an attempt to quantify and systematize relationships among variables that we believe to be causal.
...
While much prediction is quantitatively driven, a qualitative form of prediction occurs when experienced traders recognize recurrent market patterns and base quick decisions on the occurrence of these patterns. Because such intuitive pattern recognition can look so much like superstition, it can be challenging to differentiate skilled intuitive discretionary traders from superstitious amateurs."

Or does it actually support better understanding of the market? If so, what market mechanics does it describe?
"Understanding is quite different from prediction. We can predict when the sun will rise in the morning, but not necessarily understand the reasons for the sun's apparent movement. Understanding addresses the why" behind prediction.
...
A very useful brake on the overfitting of trading systems and models is the use of input variables that make sense within a plausible theoretical model."

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  #17 (permalink)
Elite Member
London/UK
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: Optimus/Rithmic
Favorite Futures: ES, 6E, FESX
 
Posts: 103 since Jun 2012
Thanks: 76 given, 154 received

I've been sim trading using auction theory concepts last couple of weeks and I can see that one can anticipate and exploit larger market moves. I will continue my work further.

Could someone please clarify one last point. Does auction theory rely on a couple of principles (like balance/imbalance, value) and it's trader's task to identify opportunities that fit the context; or does one need to experience multiple market states (range, failed breakout, trend, exhaustion) in order to know what information to use.

I know that after 6 months or so I will be able to answer this question myself, but knowing what more experienced traders think on this matter would help me to get to that 6 months mark

Will greatly appreciate any comments.


Last edited by isla; September 26th, 2014 at 12:47 PM.
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  #18 (permalink)
Elite Member
London/UK
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: Optimus/Rithmic
Favorite Futures: ES, 6E, FESX
 
Posts: 103 since Jun 2012
Thanks: 76 given, 154 received

So it's been roughly two years since I got into studying auction theory and I believe it was a turning point in my development as a trader. I started a blog a couple of weeks ago with daily updates, which is not a trading journal but more of a collection of my thoughts based on current day's session.

Hope someone will find it useful: MY TRADING EVOLUTION

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  #19 (permalink)
Elite Member
London/UK
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: Optimus/Rithmic
Favorite Futures: ES, 6E, FESX
 
Posts: 103 since Jun 2012
Thanks: 76 given, 154 received

Today's post is more about dealing with losing trades than analysing markets. I noticed that all information on trading psychology only became relevant to me after years of transforming and adjusting my old attitudes and beliefs about work and life generally. To a certain degree, it is impossible to simply read yourself into becoming a new person, one has to go through a long and sometimes painful process. Now I know that the difference between a beginner and an experienced trader lies in their attitudes and especially in how they view losses.

Today I did everything "right" but had two losing trades in CL. This is why I make a strong emphasis on looking only for trades with positive risk/reward characteristics, as there are periods when losses accumulate what seems without a reason, but one still needs to have confidence to take the next trade. I tried many styles of trading which rely on high win rate but found them to be too short-term oriented to perform well under different volatility regimes. Since then, I only look for opportunities where I can make at least twice as much as I risk, which allows for much less precision.

On the daily chart we left a two-day balance above today's open which made me look for shorting opportunities:
Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).

I didn't see any resistance on the way down and I thought that recent low (around $43) was pretty weak and could be revisited soon.
Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).

My first trade was a breakout from the range of the first 30min of trade which resulted in a quick loss. With gap so large I still expected a lower value for the day relative to recent balance. When I saw that the gap was still open after the first hour of trade, I decided that fading break of initial balance would be a good trade allowing for a tight stop loss placement. There was a reaction off yesterday's low and I entered on the move back into initial balance area. The trade looked promising and went to approximately 1:1 risk/reward, but I was expecting a larger move and got a second stop out.

I know there will be the next trade and all I can do is to keep my journal and learn from my mistakes over time. I will always be thankful to Dr. Steenbarger for all his work and strongly advise to read his blog: TraderFeed

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  #20 (permalink)
Elite Member
London/UK
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: Optimus/Rithmic
Favorite Futures: ES, 6E, FESX
 
Posts: 103 since Jun 2012
Thanks: 76 given, 154 received


I'm sure everyone experienced a feeling of being lost and not knowing what's ahead in their trading. This video talks about different types of problems and ways of thinking about their solution: https://www.youtube.com/watch?v=q7LRxKHdao8

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