A Journey into Market Profile

[omniscient]

i hope this journal has something useful for others. if not, it at least affords me the chance to document my little daily epiphanies in a central location - instead of scribbling them on random inanimate objects.

also, this is how i use MP. to each his own

as i mentioned elsewhere, i am not currently the best at acting on Market Profile driven patterns. i use it in conjunction with Support and Resistance. i incorporate a bit more, but that's most of it.

today already offered many opportunities for applying Market Profile tendencies. since i focus almost exclusively on the ER2, that's what i'll be posting here most often.

we started off with some major gap action to the upside. by opening, the ER2 was up about 3-points. yesterday was a big up day, and opening at 648 and change we were coming very close to an important psychological number - 650. it kept going and popped through the 650 barrier. after a decent pullback to the mid-648s it was off again.

the steam ran out around 651.4 - which was one tick away from a Daily Resistance point of 651.5. Frontrunning this DR level and shorting between 651.20 and 651.00 would have been a relatively heat-free entry. there was more selling around this level which often leads to reversals.

okay, so there was a reasonable short after the excitement waned. what was i looking for next? filling the gap and getting close to yesterday's Value Area High (VAH). if it moved to that area, which was around the 645.80 mark, look for a long opportunity.

well, it went from 651-ish down to around 647.50, pulled back about a point and continued downward - to 645.80. again, i'd be more inclined to frontrun that area by a couple of ticks. so the gap was filled and we found our way back to yesterday's VAH.

from this long around 646 it moved back up to the Developing Point of Control (DPOC) which was about 648. the 648 area, originally a point of support, has become at least a temporary line of resistance. in fact, 648.4 was today's Daily R1. i look to retest, possibly break through yesterday's VAH. if not a full break, i'd look to at least fill the gap into the overnight low of 644.70.

so that's what it looks like to me so far. it'll be nice when i do more active observing. i'd like to say i made all the trades i observed but i did not. i did see the setups i mentioned as they happened, but i'm the only one who knows if that's true. it doesn't really matter though, because the setups still exist.

that's enough for now. i don't usually do much after about 11:30am eastern. if i see anything else after close, i'll put my little two cents in here.

hope this helps.

gtty

 

[omniscient]

well, it did go down to the overnight low of 644.70 (which also happened to be a high volume bar yesterday). it's since popped back up to 646 (just a couple of ticks above Developing VAH) and come back down to low 45s and 44s. well it just broke a bit further, but it's still during lunch in the summer. yuck. it can get very choppy.

anyway, so there was a decent rotation from 644.70 up to 646 and back down to 644.20 (so far). not everyone likes looking for 1-3 point rotations but i prefer it. if you can trade three roundtrip rotations, each side for a point or better, you're looking at 6-points gross. so far that is better than 80% of today's ER2 range.

gtty

take care -

omni

BTW: the YM has filled its gap and the ES is within a tick of filling its gap. just an fyi ...

 

[omniscient]

price dipped down to 644, found no new business and started its way back up towards the 648 Resistance area. once it reached that area, it pulled back about a point and has been churning in that 1-point range for about an hour. given the stickiness of that area and that it is the DVAH, i'd look to take profits and/or reverse at 648. honestly, had i traded that up move, i probably would have got out around the DVAH and called it a day. it's not lunch time any more and it's still acting quite slugish. the main distracting factor for me is that even though these are recent lows (mid to low 46s), it's mostly buy volume. who knows ...

gtty

take care -

omni

 

[omniscient]

as exciting as today began, how did it finish up compared to yesterday? the ER2 actually closed down 3-ticks from yesterday's close.

not too surprizingly, we saw an extreme price within the first hour of trading. seems that is a pretty common event. i guess the trick is to know which way and for how long

we saw the HOD within the first 30min of RTH volume was a bit thin and heading south. in the chart i uploaded we can see while we were making new highs we were actually seeing negative net volume. no new business up there - price had auctioned up far enough to shut off buying. sellers stepped in and pushed price down to fill the entire gap and a little bit more.

on the MP chart a couple of things stand out. first, the Initial Balance (IB), which is the first hour of RTH trading, held at least one daily extreme. second, we saw Range Extension (RE) below the IB. next we saw the Developing Value Area narrowing and moving down. we also saw the POC moving down. we see too that today's VA ended up overlapping yesterday's VA. finally, we see that along with closing in the lowest quadrant of today's range, the ER2 closed very near today's VAL.

along with a link to today's MP chart,

http://charts.dacharts.com/2005-06-17/ab_day_mp_617.png

i'm including a link to today's 5min bar chart.

http://charts.dacharts.com/2005-06-17/ab_day_5min_617.png

on it, i've included the 10, 20, and 50 MA, as well as the DDF (roughly). the MAs are mostly there because a lot of traders include them. i may not trade by them, but if i am looking at a possible position i will take into consideration my entry/exit/stop if it is near one of these areas.

also, in my last post i was looking at the bounce off of the 648 mark, which was shaping up as the DVAH. as it turned out, price bobbed down to the low 46s (yesterday's HOD), climbed up to 648, popped up to almost 649, and eventually worked its way back down to low 45s and high 44s. there seemed to be a lot of hovering around the 46 area, though there was actually very little volume between 646.20 and 645.80.

anyway, a couple of nice rotational plays off of the VAH. again, what started out as support, the 48 area finished as a triple-tested area of resistance. i suppose it's fitting for the Triple Witching 'holiday'?

i think that will do it for now. i'll look at more stuff later on this weekend and see if there is anything else worth noting.

until then ...

take care -

omni

BTW: it may be of some interest to note that while the YM and ES did finish at or near their VAL and fill their gaps, neither VA overlapped yesterday's VA. just an fyi ...

 

[OrangeCat]

Dear Omni:

I'll be interested in your post because I have recently incorporated MP into my trading. Do you find it useful? Also, from what educational source did you get your MP information? Finally, how long do you typically hold on to your position?

 

[omniscient]

Orange -

thanks for your questions. i hope i have sufficiently answered them.

Quote from OrangeCat:

Dear Omni:

I'll be interested in your post because I have recently incorporated MP into my trading. Do you find it useful?

very. i'm still regularly amazed how reliably the market adheres to Market Profile concepts. again, not all the time every time, but consistently.

Also, from what educational source did you get your MP information?

these have been my main resources for learning and applying MP:

http://www.cbot.com/cbot/docs/handbook.pdf
from the source - the official CBOT MP manual. a bit dry, but quite detailed.

http://www.amazon.com/exec/obidos/t...103-0134753-9931045?v=glance&s=books&n=507846
this is my main resource. i bought the book but also have a PDF of it so that when i highlight and scribble on the book too much, i have a back-up copy

http://www.amazon.com/exec/obidos/t...1/103-0134753-9931045?_encoding=UTF8&v=glance
i got more out of the first half of this book than the second half. i'll be re-reading it soon; maybe the second half will mean more to me now.

http://www.zapfutures.com/archives/daltarch.htm
nice seminar by Dalton

http://www.rjofutures.com/learning_center/seminar_archive.php
you can register (free) and gain access to a bunch of different seminars on a variety of trading topics.

http://www.jpjtrading.com/
JP maintains a monthly MP trading room. he mostly trades the ES, is dedicated to using MP, and has over 20 years of floor / electronic experience that he is willing to share.

http://deltat1.com/DailyNotes/DailyNotes.htm
guy (an ET member; also a member of JP's room) has a great site with a bunch of trading related info. this particular link is where i start my day. i finish my picture of the current day and start building an idea of what to look for tomorrow. rinse. repeat.

http://www.cisco-futures.com
this site has a TON of stuff. honestly, i've only scratched the surface of what it offers. it's nearly overwhelming. but i won't fault it for providing too much information (most of which is free)

http://www.marketdelta.com/top10marketprofile.aspx?nav=3
i like Market Delta a lot. the whole site offers a lot of useful information - on MP and trading in general. plus, you get a full 30-day free trial of their live software.

Finally, how long do you typically hold on to your position?

i currently close all positions intraday. within that timeframe, it varies a lot. i've been in and out of positions in seconds, and i've held a position most of the day. i prefer shorter holds. a couple of things to remember:

1. i typically like to finish up by 11am central. i might stay tuned off and on for the rest of the day, but i am usually pretty spent by then. i work midshifts, so i leave work around 8am and ready for opening bell.

2. i'm not a MP purist. i use it more to give structure to my trading style / personality. the most difficult type of day for me is one that offers an opportunity at open and stays on course until close. i like market indecision, i like rotations.

hth

take care -

omni

BTW: even though i started this journal mostly for personal documentation purposes, please feel to add your own experiences, insights, observations, and so forth.

 

[omniscient]

i got the crap beat out me on the 16th, but that was my own fault

it was trending and i really struggle with trend days.

anyway, live and learn …

Daily Dope
VA-HL: 37.3 / 33.1
PD-HL: 40.0 / 31.4
ON-HL: 41.8 / 39.1
OR-HL: 41 / 39.4
OR-SB: 42.5 / 37.9
2.5-SB: 42.5 / 28.9
SR1-BS: 42.6 / 33.7
SR2-BS: 45.6 / 28.2
IB-HL: 41.5 / 38.2
DDF: 39.6

Overnight
after reaching an overnight high of 641.8 and low of 639.1, the ER2 opened very near the 15th's close (639.30). since we are already around the overnight low area, the next obstacle will be trading through the 641.8 area.

Gaps
since i like to fade gaps, I look for a scalp of between 5-10 ticks then look for a reversal into a gap continuation. If the continuation looks weak, get back in line with the fade.

The ER2 was over 640 just before open, so I’m looking for a drop. With such a small gap, I am cautious to fade. we did drop about a point from open to 638.20, found no more business (real thin volume) than was available on the 15th and began working our way up.

It did spike up to 641, but there was really very little action above 640. This type of behavior is why I don’t automatically fade the opening at open.

There was a weak pullback from 640 to 639 and then up again to 641.5 – just a couple of ticks away from the overnight high. Gradually, it worked its way down to 639.5 (which turns out to be the DDF line). Take a good look at this area cuz we are about to be done with it for the day.

MP stuff
first, we opened about 2-points above the 15th's VAH (637.20), so we are looking for longs. As the IB is forming, we have 638.20 as an area of support and 641.50 as a resistance area. As such, a breakout of 641.50 looks viable, or a weak pullback to the 640 (639.6 DDF line) area would be good too. It turned out that the 41.50/38.20 did form the IB for the day.

A long near the DDF would have been nice, but let’s go with a long around the top of the IB. We had Range Extension (RE) to the upside, so this was a very doable trade. If that was the only trade all day and you sold at close, it would have been a solid 4-point play. How much heat? After the IB was formed, the lowest price seen was 641.40, so assuming you got in 1-tick above the IB (though per MP suggestions, I think you are advised to look for a 3-tick or better RE before entering a RE trade), you would have had max heat of 2-ticks. Basically, it ‘One-ticked’ the IB. In 1-Ticking the IB, it also filled the singles between 41.50 and 42.10.

I don’t have the MP chart broken out into additive shots (i.e. 9:30-10:00, 9:30-10:30, 9:30-11:00, etc.), so I can’t really give a progressive picture of the day, especially regarding the DVAH, DVAL, and DPOC. However, since I can see that price stopped at 643.80 in both the F and G periods, it’s clear that 644 became a point of resistance. With that information, a short looks like a viable, low-risk option. From the high 43s, we look for 42.5 to be the first major area of support (given its role in the 2.5-B, SR1-B, and OR-B) and then 41.5 as a primary support (IB-H). Basically, since price traded through the 42.5 resistance area, it switched into a support area. Since everything still looks long overall, I wouldn’t get too carried away with shorts – in other words, if you take on too much heat, you could quickly get blown away by a resurgent upward push. Our second level resistance (45.6) is not too far away.

Another reason to be cautiously short: lunchtime. Volume really thins out and no matter how big a day the ER2 is having or will have, it is nothing for it to churn in a 1-point channel for 60-min, 90-min, or longer. It’s a great way to get chopped up and pay someone else’s mortgage.

Well, both areas of support played their roles. The 42.5 held for a bit, but then it broke down and the 41.5 IB-H area held (it got 1-Ticked to 41.40). Then when things picked up again, 42.5 held for the remainder of the session. If not still, get back long. It eventually made it through the 45.6 and through 46, but kind of pooped out (not much volume after 46). Call it a day or reverse into a short if you want to try to take out the singles in 45.20 and 45.10 (which it did fill).

Summary
After opening well above the previous day’s VAH, the ER2 went up for most of the day. It was very possible to make a single trade based off of the upward RE of the IB. The DVA moved up, the DPOC moved up, rotations moved up, and obviously price moved up.

again, since i don't rely solely on MP, my trade observations are a bit different than those seen by purists. i find a lot of value in incorporating Support, Resistance, Overnights, and Openings.

A couple of interesting notes:

1. 42.70 was the daily High Volume Bar – which happened to be a couple ticks above the daily R1. Though not as impressive, 45.70 – again, a couple of ticks above a pre-determined resistance area – was the HVB for prices between 44.80 and 46.30.

2. 44.70 another HVB was second only to the 42.70 HVB. I don’t know what significance it had, but something was drawing trades to it.

3. As is often the case in the ER2, the IB contained one of the daily extremes (today, it was the low of 38.20)

Take care -

omni

BTW: i'm still playing with the overall format of my posts, but i will be adding more past MPs. unfortunately, since i started with a current date, it's likely to be mixed up as far as the chronology. it may go something like June 17, 16, 15, 14, 18, 13, 19, 10, etc. just an fyi ...

 

[omniscient]

Daily Dope
VA-HL 35.2 32.2
PD-HL 37.5 29.7
ON-HL 40 37.1
OR-HL 39.5 38.9
OR-SB 41 37.4
2.5-SB 40 27.2
SR1-BS 40.1 32.0
SR2-BS 42.7 26.9
IB-HL 39.5 34.5
DDF 38.8

Overnight
After closing at 37.3, the ER2 made its way up to 40. Big psychological number, for sure. How convincing would it be? Would it be able to hold on to the 40 area? Would it break out of the area? Or just break down? The day would soon tell the tale …

Gaps
Well, clearly, with a 3-point gap up to an important psychological number like 40.0, I’m looking for a fade to the downside. As it turned out, that gap fade would have been a solid and sustaining move that lasted most of the morning. There really was not much of an attempt to continue the gap, so no reason to reverse from the opening position until conditions change.

MP and S/R stuff
Okay, by opening bell, the ER2 was well above PDH (37.40) and previous day’s VAH (35.20). We also opened very near the daily R1 and the 2.5-S areas, but could not trade through them. It wasn’t long before we were well below the PDH and nearing the VAH. While the IB was forming, there was very little business above the PDH. The DVA was expanding, but perhaps more notably it was dropping. By the time the IB had been formed price had now traded into yesterday’s VA and was still dropping. In fact, price traded completely through the previous VA on a massive RE down.

There was a long buying tail of single TPO prints on the 14th that extended down to 29.7. Price traded down to 31.30 before it began to retrace. Yesterday’s buying tail began at 31.30. Coincidence? There was virtually no business below 31.70 and price was Double-Ticking the IB-L (34.4) within the E-period. So far, the DVA had expanded and dropped in each of the first four time periods.

There was a nice little bounce off of the IB-L down to 32.90 before heading up again. What we have seen so far is that the buying tail from the 14th has provided support. My daily S1 area (32.0) is also holding up after taking about 7-ticks of heat. And with a support level like 32.0, I’d look for some downside creeping before leaning too heavily on it for support.

By period G, the DVA had stopped dropping and started narrowing – so it wasn’t going up but it wasn’t going down. Pretty much the same thing was going with the DPOC – it was stabilizing. The DPOC was also at the bottom of the IB.

As things started slowing and looking ripe for a reversal upward, there were a couple things to look for:
1. the singles in the C time period from 35.70 to 35.0
2. the single print TPOs in B time period from 39.40 to 36.40

As we get further into the day, the DVA becomes more and more important. A good example of this is the fact that in H-period, the upward movement stopped 1-tick above the DVAH and 1-tick above previous day’s VAH. 1-tick above this point was a HVB for the 14th between 34.80 and 37.40; it was also a DHVB on the 15th between 34.30 and 39.40 as of the H-period. For both H- and I-period, price action went as low as 33.70 (major HVBs for both the 14th and 15th) and as high as 35.30, which was the DVAH as of the I-period. In J-period price moved past the 33.70 area and within 2-ticks of the DVAL.

This all means that by H-period I would be looking to short the DVAH (frontrun it by a couple of ticks), as we in overlapping value areas, and by J-period looking to buy the DVAL (frontrunning again). Originally, I looked to short the IB-L and the 14th’s VAL. That worked but when price couldn’t trade through the buying tail formed on the 14th, I had to change gears and go long. That’s what brought me back up to the resistive area around IB-L, VAL, and DVAL.

Buying the DVAL in J-period brought us back up and filled the singles formed in C-period. Once it filled the singles, it retraced some and by K-period was at 2-ticks below IB-L. While this was all happening, we see the DVA continue to pull up the low end and extend the upper end while it moved upward. At this point the path will be to retest the IB-H, as again we have a current daily extreme contained within the IB. As price appears to be gaining upward momentum I look for a possible long (if not already long from the IB-L) from the DVAH. A long from this point would have brought with it about 8-ticks of heat, but we proceeded to completely fill in the selling tail produced in the opening 30-minutes of the day. Price did go 3-ticks above IB-H, but it was very late in the day, it was on light volume, and it wasn’t enough to completely fill in the gap to the overnight high (missed it by 3-ticks).

Summary
There were several trading opportunities, most profitable, and all with low risk. Some were more discretionary than others, but as I will continue to remind, I use discretion in my trading and applying MP.

We got to see many effective reference points in action today – VA, DVA, IB, buying tails, selling tails, singles, daily S/R areas, overlapping VAs, and RE among other things. Is it statistically possible that all actions aligned with the various reference points are coincidental? I really don’t know, but I would have to say no. As I have said before, I have seen too many instances when price conformed to particular reference points/areas to the tick. It may not be 100% accurate 100% of the time, but it doesn’t need to be for me to trade it.

A couple of interesting notes:
1. The 40.0 area was heavy (R1, ON-H, OR-H, 2.5-B/S) and held its weight through the day – even as the ER2 literally made up all ground lost after opening.
2. Intraday singles filled
3. Opening selling tail filled
4. Gap very nearly filled

Take care –

omni


BTW: still working on overall format of my entries.

 

[omniscient]

well, came out with something, but missed key trades and entries.

what worked:
1. fading the gap
2. selling the VAL (with some heat)
3. selling the ON-H (minor heat)
4. selling the OR-S (very minor heat)
5. buying the ON-L
6. selling DPOC
7. selling DDF

i'm sure there are others, but i'm tired. i'll recap the day later on. my guess about the rest of the day? down to lower lows or a RE to the upside for new highs, but then trapsing back to the middle of the range for basically an unchanged day. but who knows ... i never thought Survivor would last as long as it has either. and The Real World - go figure.

i didn't participate much today. got in on selling the VAL, but at a bad price (my fault). had i paid better attention to the Daily Dope, i would have waited for the OR-S entry. as it was, i took too much heat (1:1 risk to reward) for my tastes. however, i have made worse trades. in fact, i followed up my winning trade with a loser that should never have happened. i'm glad it did - i need good examples of why it's not good to chase.

eventually i got back on the right side and walked away green for the day. not much, but green. better than scratch and better than red.

take care and gtty -

omni

BTW: my mistakes were my mistakes. i saw good viable trades, but either hesitated or misplayed them. even in this tiny morning range (currently about 4-points) there were easy opportunities to exceed entire range. hell, fading the gap and reversing at OR-S or even VAL would have exceeded the daily range. oh well, just an fyi that i am responsible for my paltry returns.

 

[omniscient]

i'll do my main markup stuff later tonight (i.e. early tomorrow morning).

for now, i'll post a couple of charts for the ER2:

http://charts.dacharts.com/2005-06-20/ab_620_mp.png
main 30min MP chart for ER2

http://charts.dacharts.com/2005-06-20/ab_620_mp_splits.png
same chart but with splits added to show the rotational movements

http://charts.dacharts.com/2005-06-20/ab_620_mp_5min_segs.png
i've just started looking at this version of the MP tonight. it's basically a 30min MP chart broken down into 5min segments. it still structures it in 30min blocks, but each letter has up to six instances. this gives a little more granular view of how often and in what rotational context the contract traded at a given price.

more later ...

take care -

omni

BTW: it made new highs then ended up closing almost exactly where it opened for a move of almost zero (actually down a scoche). since i'm not a market/direction/etc caller, i'm done calling after this call. it's not a full 100% call cuz i first said it might break and form new lows or do what it did. either way, i'm not a caller. my main motive for 'calling' anything is to document my read of what the market is telling me. today i did okay on my perception.