PaperTrader, For a guy with 5 posts to his credit you sure ask excellent questions. Good work - this is exactly what I had in mind with thread. I knew this question would bite me at some point. Alot of people who's opinion I value, including floor traders, tell me that pivots do work. Fine, but can somebody please explain to me what the fundmental concept behind them is? Examining the formula does not provide a clue. This may well be case of a self-fulfillling prophecy. They work because everybody thinks they work and therefore they use them and therefore they work because every uses them - circular logic. Having said that, in this game if something works for you then be all means explot it for all it's worth. My other resistance to pivots is that I like clean uncluttered charts. I'm not going to add a line to my chart (let alone six) if I can't explain why the hell it's there. The bottom line is I can't give an informed assessment because I've never used them. Maybe somebody knowledgable on the subject can share their experience? Failing that I'm sure ET has a multitude of Pivot threads. In fact I am going to run a search after this - I might even learn something. In a word VERY. There are lots of schools of thought on how to employ the TICK. Here's my rendition FWIW. The TICK is essentially a count of the number of NYSE issues that are declining or falling at a given instant. From memory it is computed every six seconds (???) and is broadcast from 9:30-4:00. Much of the day you can ignore the TICK - it'll drive you nuts watching it bob up and down. You only want to pay attention when it reaches an extreme reading - I recommend you set alarms/alerts at your desired levels so that you have 1 less chart to watch. When a TICK extreme is reached either one of two things has just happened, 1) buying or selling pressure has just climaxed and prices are at a short term extreme and therefore the chance of pullback is very high. 2) a large buy/sell program has just been triggered in the cash market. I showed an example in a chart in an earlier post. In either case you want to fade the TICK. I do not advocate initiating a trade based on a TICK extreme but it may be an ideal time to take some profits, add to a position or simply liquidiate. What are extreme readings I hear you ask? Well that depends. First thing to realise is that TICK readings are not symmetrical. If your buddy has a line on a TICK chart at +600, 0 and -600 then you're hangin out with a chump. The TICK has a posetive bias - ie: it's distribution has a right hand skew. Two reasons for this - 1) equity markets generally have a posetive bias, and 2) the uptick rule (is this still in effect - I'm not an equity guy?). I'm current using +1000 and -600, but I move them around as I see fit (especially in a down market versus an up market). Here's another gotcha, you're buddy with the TICK chart - if he's using a line chart then stop hangin out with him. You must use a bar/candle chart to pick up the extreme readings. I see this mistake all the time. More experienced traders will glean alot from watching how prices react at TICK extremes. Eg: if a TICK reading of +1200 has failed to push prices higher you are dealing with a weak market. I suggest you put a TICK chart on your workspace immediately and start watching it. You'll be amazed how useful it can be. I'm just about ET'ed out for today. I'll check in again tomorrow.
Thank you for the great answers! One area of Market Profile that has remained unclear to me is trading the price 'between distributions'. How do you identify the trade when the price is breaking out from one distribution and returning to another earlier distribution or starting a new distribution? What are you looking for to confirm a new MP trade? Thanks again!
Just one last thought on TICK extreme levels .... In "They"s thread he had an ingenious method for dynamically determining his TICK levels by overlaying a volume profile on the TICK and using the LVA and HVA levels (although I suspect he might have used 2 Std Devs and not 1). Nobody seemed to get it - but this idea has real merit. Although I would suggest employing a good deal more than 1 days data as the basis. It's on my list of research items. Ciao.
Hey bolter.. Great Thread.. The general gist of MP is going long above POC, and short below POC? Would going short under VAL, and going long above VAH, an even better way to play Market Profile, for a little bit higher probability setups.
Sounds like I've been using the TICK correctly, at least in part. I also like to watch for TICK versus PRICE divergences at the extremes for potential reversal signals. (2 examples Friday in the YM @ 10:40 and 13:35) Would you be kind enough to address money management with MP in the future? The first couple days of this thread offered some good examples of "managing" your trades when you find yourself on the wrong side. More info on this subject would be greatly appreciated. Thanks! PT
PT, Excellent point - I didn't make this clear in my post. TICK divergences are very useful in identifying short term momentum swings. MM is my favourite aspect of trading, and I've invested heavily in terms of effort over the years to study this discipline. Trading ultimately is a game of probability - risk and reward (payoff). I had planned to get to this topic later in thread, but at this stage let's just say that I advocate Fixed Fraction position sizing as the best all round strategy. That is, you risk a constant percentage of your trading capital on each and every trade. In the futures market given their inherent leverage generally this fraction will be in the order of 1 to 2%. In my trading (paper remember) at the moment I am usng 2%. I've seen alot of novice traders who use a fixed amount of risk per trade (say $500) or simply wing-it at the time they put the trade on. I can't begin to tell you how detrimental this will be to your account over time. If you don't understand the concept of Risk of Ruin (Ralph Vince) then you need to do some research and build an Excel spreadsheet that you can use learn it. Here's another stupid MM technique that I see employed by many daytraders - a daily target. "I was having a really great day. I hit my target by 10:30 so I stopped trading". My wife employs logic like this, but as a trader you shouldn't. To really grow your account you must learn when it's time to be greedy and then you really want to be a PIG! I'm sure there any many good MM threads on ET that will help get you started. I remember seeing a good one hosted by CMS. Boy I'm a subject matter expert on this one. I like to have a plan for every trade. Here's where my trade is wrong so I'll place a (hard!) stop. I'll take some profit here, I'll add some more here etc. Gotta have a plan and stick to it. After a while you'll learn to alter the plan as the action plays out. But what you do don't want to do is turn a poor trade into a catastrophe. You must keep yourself in the game at all cost. I'm also a strong advocate of developing a business plan for your trading and keeping a journal for each trading day and reviewing it often to form a feedback mechanism. Enough of my pontificating!
Believe it nor not Ripley MP is not a trading system per se. It is a methdology for understanding the auction market process. Steidlmeyers' bible on the subject doesn't mention specific trading strategies at all. Just wanted to make that clear. The way you have stated it is NOT how I apply MP logic. I take my initial bias for the day based upon where the market opens relative to the POC. As a general rule, if it opens below by more then a few ticks then I have a negative bias - by which I mean I will be look to short rallies. Above and I will be buying pullbacks. This is fundamentally a counter-trend trading strategy. I am buying weakness and selling strength. My rationale is that there only a few real trend days per month and I like to go with probabilities. I can still be very profitable on trend days but I don't buy breakouts or sell breakdowns - which I guess is the key point. I wouldn't short a market just because it is below the LVA, and vice versa. I would be asking questions like is this VA still applicable, is the range being expanded, have we found a possible new VA. Do some homework Ripley - it will start making sense. bolter out!
I respectfully disagree. Daily targets help me to manage stress, greed, and fear. I prefer to gradually increase size than trade for more points. I trade to live not live to trade. Just my 2 cents.
Updated Volume Profile Charts below. I changed the start date for the accumulation period on the ES and YM to 1/12, but left the ER2 @ 1/1. I notice alot of people use fixed periods on volume profiles - say 5 days or 20 days, whatever. I don't see much sense in that approach. I prefer to use as much data as I can that incorporates positions held by longer term traders for the current "move". For example, by moving the start date to 1/12 I am eliminating data from the previous upleg. In essence I want to analyse the volume by price since the market started heading down. Hope this makes sense. If you've been following this thread then the importance of the indicated levels on these charts should help. But bear in mind the VP gets filled out a bit more each day and the levels change. ES YM ER2 Incidentally, I've decided to stop covering the NQ. I watched the action on this market a few times this week and to me it feels more like a scalpers market to me. But I must say I am very impressed with the action in the YM and ER2. These contracts weren't around when I was daytrading so this week was the first time I've seen them in action. They have a different dynamic than the ES - maybe it's that absence of serious arb activity, and/or the lack of a decent full contract for these markets. Interesting, I think I'm gonna like these babies. bolter