Market Profile Plus by bolter

Hey ARb,

I usually like to find somewhere logical to put the stop, based upon levels or the price action. If that doesn't work I'll use half my target as the initial stop to mainatin a 1:2 risk/reward. And you're absolutely correct I did get pinged on my first trade. I got back in later at the POC but it went nowhere.

And thanks for you kind words

bolter

 

I still didn't answer your question. 2 pojnts is the answer. I rarely use a tighter stop than that, becuase if I don't see at least 4 points in the trade I will usually stand aside. I sometimes take less than 4 but that's my minimum target.

 

I got some studying to do over the weekend. Shit........... it will be raining all weekend in the bay area and what's better than learn a new skill set.

Thanks for the input. I hope I can return that favor with some "green nuggets" down the road.

TC.

 

There is an educational video at the CBOT website entitled "Market Profile - Trading Strategies & Applications". It seems very relevant to the strategy discussed in this thread. Thought some might find it helpful. Not sure if it has been mentioned already.

Here's the link: http://www.cbot.com/cbot/pub/cont_detail/0,3206,949+19121,00.html

 

Bolter,

Damn fine thread. Where were you when I was first started trading these things?!

Your method, while being profitable, is very easy to digest for anyone from noob to the seasoned trader. I especially like where you map out a plan plan BEFORE the action begins, and plans A-B-C's to deal with market conditions as they arise. This alone is worth the price of admission and newer traders should make this a priority. When the phones ringing the dog's barking and the stoves on fire, you best have your head up with two eyes open. It's so much easier to deal with if you have your cheat sheets for strike and counter-strike.

Nice work, man.

 

I promised to write something on Money Management and Position Sizing.

Money Management cannot make a losing system/method profitable. However, money management can keep you in the game long enough to figure out how to become profitable. A losing method and no money management = impending demise.

Anybody who has been involved in systematic trading understands the importance of position sizing. Take a decent system and backtest it over say 5 or 10 years using a number of different position sizing methods and you get dramatically different outcomes, both in terms of returns and the volatility of returns.

In addition to very popular fixed position sizing techniques (fixed lot size or fixed risk), many discretionary traders extend that discretion to bet size. Usually based upon how they feel about the trade, what sort of week they're having, how many cups of coffee they've had, market volatility, or how they did on the last trade. I know a guy who used a hangover inverse method. These are all bad ideas. By implication these methods are all suggesting that position sizing is an unimportant consideration and can be managed subjectively.

Your trading method will determine whether you are profitable, but it is money management that will determine your level of success. An average method with good money management will ultimately outperform a great method with poor or no money management. Period!

Here's a few things to get you started on MM - you'll need to do your own homework. There is also plenty of decent material on the web – gotta sift through the crap though.

This is a decent recent thread on MM hosted by cnms2. http://www.elitetrader.com/vb/showthread.php?s=&threadid=59325&highlight=cnms2. Do a search for other MM threads on ET.

I think the guy that has been doing the most interesting things with MM in recent years is Van Tharp. His concepts of expectancy and r-multiples I use extensively. It is very simple and pragmatic approach (just my style) and can easily be done in Excel. His book "Trade Your Way To Financial Freedom" is excellent, and I believe he has another one on the way. He has a website that is called the Institute of Trading ……. or something equally pretentious, but I recommend you start with his discussion group. http://www.mastermindforum.com/phorum/list.php?f=9. There is a lot of stuff here – use the search function.

I mentioned the importance of understanding the Risk of Ruin formula previously. It was developed by Ralph Vince. He has written three books, the first two are excellent for understanding the math behind MM. You don't need a PhD to understand it. Recommended for the more hardcore among you.

As far as position sizing techniques is concerned there are a myriad of different approaches. You've probably heard of some like Optimal-f, the Kelly criterion, Martingales, anti-Martingales….. interesting to understand them if you're a real MM aficionado but of little practical use.

There are 3 position sizing techniques that are reasonably sensible and I believe all traders should be conversant with.

1. Fixed fraction – this is absolutely the best all-round position sizing strategy. You bet (risk) a fixed % of your capital on each and every trade. Usually in the order of 1 to 2%. If you are winning you increase your bet size, if you a losing decrease it. Simple right? If you can't devise a better strategy this is what you should use. If you studied your risk of ruin formula you would know that the risk of ruination using fixed fraction is minimal. Much much lower than if you were using a fixed position size.

2. Fixed ratio – this technique was developed by Ryan Jones. It has it's critics but it does work well for people starting with a small account size AND who have a proven and profitable method. It is based on the premise that you are prepared to take on more risk initially in order to grow your account, but as your account grows you become more risk averse. Now this may or may not be sensible. The real risk with this strategy is when you increase position size the first time. If your method goes into a drawdown you can get wiped out quickly. Only recommended for experienced traders. A google should turn up the formula.

3. Variable fraction – this is a more aggressive version of fixed fraction. It works like this. In addition to your standard fraction (say 1%) you add a scaling factor based on recent performance. A simple example is to add say half your return from yesterday (assuming it was posetive) to your 1%. For example, 1% + 3%/2 = 2.5%. I like to use my average return for the last 5 days as the scaling factor. The theory here is that you are ramping up your betsize rapidly when you're having a good run, but quickly falling back to your conservative fraction when you hit a rough patch. If you are an experienced trader and have a proven method this will increase your returns exponentially with only an arithmetic growth in volatility.

This should be enough to get you started on MM. Focus on position sizing initially before moving on to the more complicated stuff. If you are serious about trading then you need to very serious about MM.

bolter

 

bronks,
Thanks for your kind words.

I'm glad you see the value in this approach. I think for most traders developing this discipline will prove to be nothing short of a revelation. A sort of "road to Damascus" experience.
Good luck

 

Hi bolter,
Thanks for the thread,
Great Stuff.

If you make yourself a web site, it's sure it will be a hit.
Anyway I am new to the MP and am willing to go down the same road you already have. Exept I am more of scalper.

"That's exactly correct. I export 1 min data from eSignal and then process it in Matlab to generate the MP, volume@price, levels and other stats. I then paste my data into Excel for presentation purposes. I'm happy to provide a copy of the program to anyone who has Matlab. Let me know and I'll post it. "

I am interested in creating my own levels for the Bund on Eurex, and would like to take advantage of your offer for the program that you use for your Volume Profile.

I am using e-signal too and I am not sure how do you export the 1minute data. May be a few words on the sequence and by 1minute data do you refer to a bar chart or something else.

Thanks,
kashbg

 

kashbq,
Hey thanks for that.

No problem - PM me your e-mail address.

Here the way to accomplish this.
1. Create an intraday time template, 1 min interval, 1 days data and the exact open/closing time for the market in question.
2. Open an advanced chart.
3. Apply the time template.
4. Save this as style template called 'YM MP export' or similar.

Now to export the data:
1. Open an advanced chart.
2. Enter symbol and month.
3. Load the style template created above.
4. Right click on the chart.
5. Choose Tools/Data Export.
6. Save as csv.

Bingo.

 

Hi Bolter,
Thanks a lot for that.
Your instructions are spot on.

By the way on page 30 Student is raising a good point about the difference in volume reading on the chart he posted and other volume studies.
Student wrote:
"If you go to File-New-Standard Chart-Price/Volume... you will get this chart."

When I am using my MP chart on the right hand side I've got volume bars corresponding to each price. The readings appear higher than Student's chart volumes, which makes me thing the MP vollumes might be the real stuff.
If I right click on the todays day and go "Merge Left" and so on, lets say 5 days, then you have got the combined TPOs and combined volumes for the 5 days. The problem is the volume bars appear kind of squashed and are not easily identifiable for level picking purposes.

Do you thing those resulting volumes correspond with your magic numbers.

Thanks,
Kashbg