Market Profile Plus by bolter

Discussion in 'Technical Analysis' started by bolter, Jan 31, 2006.

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  1. bolter


    I’m kicking off this journal with two objectives in mind …..

    1. To encourage further discussion about the practical application of Market Profiles.
    2. To get me back in sync with the markets (hopefully) and determine if my old techniques still work. The discipline of updating a journal will help keep me focused on a day-to-day basis.

    I’ve been investing/trading for over 25 years – professionally (OPM) for the last 5 years. I have traded equities, options, and futures. These days I stick with the latter. I trade global markets and all 9 asset classes as and when. I am primarily a position trader using systems I have developed over the years. But when time permits and the market conditions are suitable I also love the cut and thrust of trading intra-day.

    I haven’t day-traded since 2002 due to workload, and the fact that the markets have been fairly pedestrian. But now I have some time on my hands and the equity markets look set for a roller coaster couple of years. So it’s time to find out if I’ve still got it.

    As part of my trading plan I will be PAPER TRADING for the month of February. If I meet certain objectives then I will go live March 1st.

    Market Profile
    I learnt Market Profiles 10 years ago but I am not a purist by any means. I’ve long since forgotten most of Steidlmeyer and Dalton’s vernacular, but the concepts are firmly ingrained. If you need a backgrounder on Market Profile I strongly recommend you spend an hour reading the excellent thread created by They – There are plenty of links, references, books, software and wisdom contained within.

    Personally I find the concepts underlying Market Profile and Auction Market Theory to be very compelling. It provides an intuitive and robust picture of what the markets are doing on a short term basis. It took me a long while to figure out how to incorporate the theory of MP into a trading technique. They way I use it may not be exactly what it’s originators had intended but it certainly works for me. I’m sure other traders use MP in a completely different manner and are successful also. I will introduce the enhancements that I’ve made to MP in due course.

    One last point, MP is no panacea. It is not even a complete trading methodology. In my case it is only one aspect of my trading technique – albeit a critical one. I primarily use it to identify support and resistance and for understanding short-term market action.

    Trading Techniques
    I’ll go into more depth as the thread develops but I’ll start with how I prepare for each trading day. Firstly I download 1 minute data from eSignal and process it through a Matlab program I wrote to create the TPO brackets and crunch the numbers. I then paste the data into Excel and manually format it. I then examine my MP chart, and cumulative volume profile chart (both in Excel) and identify the key levels and my current trading bias. I then add these levels as lines on a 5 minute chart and map out a rough strategy for the day. A typical strategy would be if the market opens here I’m going to place a buy stop at this level with a stop loss here. I’ll then look to take some profits here and then see how the market behaves. Typically I’ll have at least 4 scenarios depending upon where the market opens, and recent action. I write these down in my journal, wait for the open and then send the orders. I always like to try and predict what sort of day it is likely to be as a mental exercise. After a while you actually get pretty good at it and it can help your trading immensely.

    Of course anything can happen at any time so you need to have the flexibility to adjust your plan for the day according to what develops. But I’ve found that MP really has helped me understand the market action and I tend to get surprised less and less.

    Incidentally, you may well ask why bother using Excel rather than one of the many MP packages available. Two reasons: 1) I get a really good feel for the markets by posting charts manually everyday, and 2) Most of the MP software I have used is underwhelming. I have the eSignal add-on but I still use Excel.

    Tone for this Journal
    I like to have a plan for each trading day. MP is a great tool for that. So that’s the style my posts will take – forward looking. I wouldn’t waste anybody’s time with a journal that says this is what I did yesterday – not much value in that. Occasionally I’ll post a historic chart it serves a real purpose.

    I do not intend to post all my levels every single day. I don’t want to spoon feed anyone. There are plenty of good sites that post UVA, LVA, POC type stuff everyday. Besides, I do things a bit different and I don’t want to have to explain why my UVA is 2 ticks different than eSignal every other day.

    What I will try to post on a daily basis is key things to look for in the near term and how I’m likely to play them.

    I’m GMT+8 so I’m mainly focused on trading and ET’ing the morning action. I analyse the ES, YM, ER2 and NQ daily. I’ll post whatever is most interesting among these 4 markets.

    Lastly I have nothing to sell, promote, flog, push or otherwise proffer. Nor am I thanklessly altruistic. I am motivated by sharing ideas and knowledge and I like to teach and learn in equal proportion.

    Let me reiterate – I am paper trading Feb 1 – 28.

    Bon chance,
  2. Good luck! I am looking forward to your journal.

  3. bolter


    Hey thanks Arb.

    Here's an interesting setup that I'll be looking for today on the YM. Yesterdays action was fairly bearish across the board for the equities, altough some of this can be attributed to Fed meeting madness.

    The YM is currently quoted on Globex at 10851. That would put the open well below yesterdays POC which is at 10895. See cell CU93 in the first chart below. If the market opens materially below the POC I'm usually looking to fade rallies. Tomorrow is interesting because the POC exactly coincides with a significant volume peak - row 93 highlighted in blue. You can see this peak clearly in the volume profile in chart 2. You can also see on this chart that there is another volume peak around 10735, with valley in between. These volume peaks usually provide excellent S/R.

    So here's the plan:

    Sell some at the LVA around 10885, and then perhaps sell some more around the POC at 10895. Place a stop above the HVA at 10920. If the market looks like it is stalling at the volume trough around 10840 I would take some profit. Ultimately we're looking for the 10735 level but we may not get it today.

    Chart 1 - MP for YM


    Chart 2 - VP for YM


    This hit-resistance-and-selloff-to-support trade worked extremely well yesterday on the ES. See how it bounced off the upper blue line and then traded all the way down to the second blue line.

    Chart 3 - MP for ES


    Chart 4 - VP for ES yesterday.


    Let's see what plays out.

  4. Bolter,

    The value you get from MP is similar for me. Since I discovered it I've never looked back. It's a bit like black magic. :D

    Looking forward to your updates.

  5. bolter


    And you know what they say RunningBear .... "once you've tasted black you ain't never going back!". Yeah baby!

    Let's see if our levels continue to agree going forward.

  6. bolter


    YM has rallied somehwat on Globex. Looks like we'll open just below the LVA. This being the case I will sell at the POC (10895) and the HVA (10915) with a stop at 10945.
  7. bolter


    I'm putting on the opposite trade on the ES. Buying at the volume peak @ 1278.75 with a target at 1282.50 (LVA) and a stop at 1276.25 (POC from 1/26).
  8. Bolter,

    Nice journal. I would love to know more about how you create your excel charts, as its something I can see value in recording prices manually to get a feel of things. Keep up the good work. Too few MP journals around.
  9. yes.. great journal. Thank you!

    I look forward to your posts. I only wish that one day I would be knowledgeable in Excel to create something like that..

    amazing.. thanks again!
  10. RAY


    good luck
    #10     Feb 1, 2006
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