Hi all,
New poster here. Spectacular forum.
Found this thread while researching the
volume profile methodology.
This thread is very interesting - nonetheless, the method is not explained, and the thread reads like self promotion for selling books and software on the make. Nothing wrong in that, but I wanted to mention it as I found odd that at the very beginning Big Mike asks for confirmation that there are no products nor services for sale - and it seems there are (Chen: "if you are interested you can borrow my book from amazon.com").
Whatever, to each his own. I learned from this thread and am very thankful to ecmf/Chen for that. Nonetheless, I am filled with unanswered questions and criticism regarding this method.
This method's practical key is triangle formation. So then it is paramount to have a method for constructing triangles. That is the key question.
Quoting Loxics:
The answer was: "A triangle is created with a high/low/BP with another BP, The software will combine ticks with user-defined interval and the user can then find his required equilibrium. The size of a triangle required is determined by the objectives of a user and his trading time frame. Longer trading time frame will mean a bigger eq." And another explanation by ecmf: "the triangles are only drawn once we have identified our equilibrium, for a triangle to be drawn we need a point of origin ... we need to find equilibrium by looking at the display of raw prices using non-fixed time intervals."
Summing up
1) Objective: forecasting price direction
2) Tool: triangle formation (in simplified terms)
3) How 1: A triangle is created with a high/low/BP with another BP.
4) How 2: It is not based on fixed time interval - but rather determined by trading objectives and time frame (aka whatever the trader wants it to be)
5) Circularity: a triangle is formed with the high/low/BP, the high/low/BP are set when the trader decides to form the triangle.
=> Conclusion: there are countless triangles and countless
support/resistance levels, just as traditional technical analysis can generate countless support/resistance levels. It all depends on the trader's artistic ability to end one interval and start another.
Am I missing something?
Three other things:
a) This method is based on Tick data (# of trades), as compared to Volume data used by the Market Profile Indicator. ecmf/Chen highlight the importance of this, and state that Tick data is better for this analysis - but they do not explain why. Would you care to elaborate why? I do not see the significance in using Tick data vs using Volume data. In fact, it could be argued that using Volume is more relevant: eg., it is more important to know the total volume in stops that would be triggered at a certain price level, than to know the number of traders positioned at that price level.
b) There is no "real" tick information in FX - in FX tick data is a measure of quote changes, and not # of trades (nor real volume). So how is this method relevant to FX? Even if it were relevant, the interpretation for FX and futures should be different. Nonetheless here the method is applied indistinguishably to both.
c) Some would argue that FX volume can be accurately estimated from FX tick volume - even though I doubt the accuracy of the estimate, assuming the estimate to be reliable, that would only provide a glimpse into retail volume, while most volume is driven by Hedge Funds, Real Money, Interbank trading and Large Corps (specially HFs, given that they like to trade in size to move the market), and these are not reflected in retail volume. This of course is a source of heated debate, and I would rather keep it out of this thread - but it is worth mentioning.
Thanks
