Market Profile/Delta.. Why used only for futures?

M

mdl060374

I have been studying and reading different uses/interpretations of market profile and the usual uses Point-of-control (POC) and HLA and LVA readings in order to see where crucial areas of indices traded the prveious day.

I started looking at this when reading Bolters old journal about a year and was impressed with the ideas.

But why would this not hold true for individual stocks? It seems people only use it for futures and indices, etc..

Wouldnt the concepts hold true regardless of the instrument being traded?

This is something I have been wondering for a bit, so if anyone can add a little clarification, that would be great.

I also ask, b/c I dont really see it offered to use in software packages for stocks to even test out for myself...
 
Stocks has block trades that jumps your POC from one place to another.

The market maker will print a block trade like 100,000 shares at a single price and it is a trade that you cannot participate because it is after the fact and your MP profile will change dramatically when the POC jumps around.
 
The "profile" works better in higher-volume markets where you have a greater magnitude of opinion and greater liquidity as a result of the high trading volume. Apply it to the most active stocks.
 
Quote from WinSum:

Stocks has block trades that jumps your POC from one place to another.

The market maker will print a block trade like 100,000 shares at a single price and it is a trade that you cannot participate because it is after the fact and your MP profile will change dramatically when the POC jumps around.
More...

Very good point. I meant to bring that up, b/c it would seem like you could filter out opening order prints, and excessively large (relative to that individual stocsk behavior) prints.
 
This is my first time seeing the concept being more widely applied/supported with tools. Most of the tools appear to be for certain markets, and the methodology is not easy to port over for stock trading.

However, this concept can be used for longer-term stock trading, and I have been moving toward using volume distributions of the float. I think the short-term trading dynamics of stocks aren't a good match for the systems being described in this forum though.

I do firmly believe that volume-at-price analysis is more meaningful than the majority of chart analytics commonly offered by brokers, but using this for strategy trading is more complex. For long-term trend or counter-trend trading though, it can reveal where the average purchase price is and how that can affect market behavior.

A statistical distribution of the volume coupled with a general notion of trading cycles can lead to greater insights. Attached is the accumulation part of MSFT's latest cycle. Currently, it's heading downward (~$26/sh), but volume analysis suggests loss-taking between $23-24/sh. The average price payed was about $27-28, but we notice +/- $5 range in the overall cycle. Rather than being precise about predicting the top or bottom, instead it is a bit easier to find the top/bottom 25% of the distribution as a baseline. It's important to remember that fundementals can cause the average to slide, but the trading range is still often a valid reference point (past purchases DO affect future profit and loss taking, even if it's somewhat arbitrary).
 

Attachments

Quote from WinSum:

Stocks has block trades that jumps your POC from one place to another.

The market maker will print a block trade like 100,000 shares at a single price and it is a trade that you cannot participate because it is after the fact and your MP profile will change dramatically when the POC jumps around.
More...

Good point and the solution to that is to not use daily VA levels for stocks, makes sense to use longer term profiles say weekly/monthly or even better - using the shape of the distribution to determine the profile length.
 
You must log in or register to reply here.
Back
Top