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Learning market structure with MP
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Learning market structure with MP

  #1 (permalink)
Trading Apprentice
Futures Experience: Intermediate
Platform: CQG, WindoTrader
Favorite Futures: grains
Posts: 12 since Jun 2014
Thanks: 0 given, 5 received

Learning market structure with MP

I have decided to track my journey of understanding market structure somewhere, futures.io (formerly BMT) seemed a decent place to start with a community that will provide decent feedback...

first, a bit about myself...

I've traded for a while now, with some mixed success but consistency still eludes me. my focus has been on calendar spreads on physicals commodities (grains & meats) for the most part. I don't trade index derivatives because they are not as easy for me to understand or model. The only index I've had success with is the Russell, mostly because of its volatility; but I find the physicals have better information that enables understanding of a market... less variables to track.

The way I see it, I need to do homework before I trade, and that homework has to do with determining the risk that I will take as well as understanding the market structure. An index doesn't lend itself well to either.

To me, Trading is about risk management, and if I don't know where I am wrong about the decision I made to enter a trade, then I risk losing more than I should. At least, that is what I have found and it has happened to me a lot... I've had trades reverse and take more than I was willing to risk and me not exiting them because I wasn't sure about what was going on... so without points of references one risks being stuck in a trade because of failing to recognize when the reasons for entering are no longer valid... or one can also fail to take profits... it all points to understanding market structure...

there are many ways to understand structure... I've picked Market Profile mostly because, as Terry Liberman of windotrader (Home) says, it helps me make confident, higher probability decisions in my trading. Actually, MP didnt really clicked fully until I watched his 4 part series video on MP (which is free btw and can be found here: Free Market Profile Course and I highly recommend it to anyone who is a beginner or semi familiar with MP ).

I found his explanations simple and to the point. Previously I've bought the Dalton books, and then moved on to his videos, but they tend to go on and on at times, and I can be impatient when someone just talks and talks to get to a point. It was refreshing to watch Terry's video because of that; they were straight to the point and as such I was able to validate some concepts that I wasn't sure about.

The goal of this thread is to document me applying those concepts, as I find it of value to review any analysis done once the market has closed and then I can see if I adhered to it or not.

I got the whole idea of making sure I did homework from Joseph Souhlakis (from http://justjoecharts.com, who also uses MP for market structure)... and from Jack Broz (of BrozOnBonds ? Get the Edge that the Trading Floor Has) ...

I've subscribed to both and I would say that I have copied their thoughts on doing homework... but they focus on energy and rates, while I am more interested on grains and meats... I did try trading their markets following their homework, but to be honest is hard to follow someone else's plan when one lacks understand as to why... so I want to stick to grains personally, and without quality mentors/analysts for grain out there, that means one has to become an analyst oneself.. (actually, I have found Craig Turner, a broker with Daniels Trading, to be a really good grains analyst... I just don't want to necessarily follow someone else's analysis blindly)...

while I trade grains, my thought is that market structure is the same for anything... meaning, once you understand the concepts it is simply a matter of applying them across the board to whatever product you trade... as such I will be running this experiment with equities instead of physical commodities and also trading only a single issue: BAC ...

why pick equities, and BAC? simple... risk management... I rather lose little than a lot... over the past 2 years its daily ATR has been around 65c (2SD) and on average it will move 30-40c... so my risk is limited if I am trading 100 to 500 shares per trade... PDT is not an issue for me and my trading costs are really, really low...

Before you ask why not demo, simple... demo is to learn a platform, not to trade... I would much rather trade FX and risk 1c than trade demo or sim. it is just not for me. Also, I can look at XLF for sector strenth, and I can watch SPY for overall market direction. I will look at the market structure across all three instruments to get my own ideas... one never knows what will lead.

In terms of tools... I use WindoTrader for market profile and charting as well as CQG... for my OMS I use Sterling Pro (Equities) and CQG (Futures)... I've been looking, and use as well, TT's ADL for automation.

before you ask, I have used and own licenses for NT7, Multicharts, Amibroker, etc... each has their purpose, but for what I do none of them meet my requirements, specially when trading spreads. I've found the tools that work for me, you are welcome to find whatever works for you.

The way this journal will work is simple... I will post my analysis for the next day after the market is closed for the day... and will also review how that day played out based on the analysis... you are welcome to challenge it so that I have to defend it.. the goal is to ensure I am understanding the market structure correctly...

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  #2 (permalink)
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  #3 (permalink)
Trading Apprentice
Futures Experience: Intermediate
Platform: CQG, WindoTrader
Favorite Futures: grains
Posts: 12 since Jun 2014
Thanks: 0 given, 5 received

sample displays

WTB is really cool... it allows for multiple sessions and chart types to be plotted within the same page... here is a BAC example of a weekly and monthly type chart using MP, overlaying volume and a 30m candle chart.. and daily at the same time using 9:30-16:00 as a session... I could've use also another session within the same page to plot the after hours markets..

The platform is pretty simple and intuitive... and it leads itself well to seeing market structure ...

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).

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  #4 (permalink)
Trading Apprentice
Nicosia, Cyprus
Futures Experience: Intermediate
Platform: Tradestation
Favorite Futures: FESX
Posts: 6 since Jan 2012
Thanks: 3 given, 0 received

how has it been going? I've only used MP for ES and YM so would love to hear your experiences with stocks and other instruments. And please comment on your subscriptions. Did they help you?

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  #5 (permalink)
Elite Member
Georgia, US
Futures Experience: None
Platform: Various
Favorite Futures: Various
josh's Avatar
Posts: 4,937 since Jan 2011
Thanks: 5,208 given, 11,515 received
Forum Reputation: Legendary

cubano View Post
why pick equities, and BAC? simple... risk management... I rather lose little than a lot... over the past 2 years its daily ATR has been around 65c (2SD) and on average it will move 30-40c... so my risk is limited if I am trading 100 to 500 shares per trade...

@cubano, just reading your post, and welcome to futures.io (formerly BMT). I agree with everything you said, but please consider something other than BAC. It just does not trade. It's one of the worst stock to actually trade I can think of. The banks as a group are just terrible.

Instead, have a look at something like MSFT. It's "old tech" enough to be boring and safe with a <1 beta, but still relevant enough to actually move sometimes. Structurally it behaves somewhat well (as well as a stock can behave and still be a stock) and plays well with MP much of the time. Of course it's algo'd but it wouldn't be a stock if it weren't--but not as much so as something like FB/TWTR. Better to trade only 100 shares of MSFT than BAC at all. In short, it's a good stock if you want to be relatively safe, yet still learn something and make money.

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