Price by volume vs. Market profile

[hamli]

I've only just started looking into tech analysis. Currently reading Mind Over Markets by Dalton.

When he discusses the auction process,logically it makes sense (to an extent). However, there will be these 'break' out patterns that are shown, but then he will say hey, these aren't always breakouts. So essentially, he can't be wrong, because he has just hi-lighted all the possible scenarios. And the book proceeds to be written that way.

I understand that no patterns etc are 100% correct. But for these 'patterns' to be tradeable and for him to discuss them, shouldn't he have provided some sort of backtest for the last 5 to 10 years across liquid products such as ES/NQ/CL/NG/GC/SI etc on such pattern?

How else am I to know, that it wasn't a case of "curve fitting". Are there any technical analysis books that at least 'claim' to have back tested their work, and provide statistics per pattern. Maybe I'm asking for too much, but that's why I'm buying the book.

 

[banco]

I've only just started looking into tech analysis. Currently reading Mind Over Markets by Dalton.

When he discusses the auction process,logically it makes sense (to an extent). However, there will be these 'break' out patterns that are shown, but then he will say hey, these aren't always breakouts. So essentially, he can't be wrong, because he has just hi-lighted all the possible scenarios. And the book proceeds to be written that way.

I understand that no patterns etc are 100% correct. But for these 'patterns' to be tradeable and for him to discuss them, shouldn't he have provided some sort of backtest for the last 5 to 10 years across liquid products such as ES/NQ/CL/NG/GC/SI etc on such pattern?

How else am I to know, that it wasn't a case of "curve fitting". Are there any technical analysis books that at least 'claim' to have back tested their work, and provide statistics per pattern. Maybe I'm asking for too much, but that's why I'm buying the book.

His articles are a lot better than his books IMHO. I think his answer would be you use context to asess the likelihood of the breakout happening and then monitor it after it's happened and take your position off (rather than waiting for it to hit your stop) if it fizzles out. Breakouts from balance are probably one of the worst ways to trade with market profile though. Waiting for inventory to get too long/short and then trading the reversal is the best risk/reward trade I've picked up from market profile as you can get a very tight stop and once it goes and it goes a long way.

 

[CanOz]

I've only just started looking into tech analysis. Currently reading Mind Over Markets by Dalton.

When he discusses the auction process,logically it makes sense (to an extent). However, there will be these 'break' out patterns that are shown, but then he will say hey, these aren't always breakouts. So essentially, he can't be wrong, because he has just hi-lighted all the possible scenarios. And the book proceeds to be written that way.

I understand that no patterns etc are 100% correct. But for these 'patterns' to be tradeable and for him to discuss them, shouldn't he have provided some sort of backtest for the last 5 to 10 years across liquid products such as ES/NQ/CL/NG/GC/SI etc on such pattern?

How else am I to know, that it wasn't a case of "curve fitting". Are there any technical analysis books that at least 'claim' to have back tested their work, and provide statistics per pattern. Maybe I'm asking for too much, but that's why I'm buying the book.

First of all Markets in Profile seemed a more relevant read for me.

shouldn't he have provided some sort of backtest for the last 5 to 10 years across liquid products such as ES/NQ/CL/NG/GC/SI etc on such pattern?

Thats a bit like asking a pit trader, like Danny Riley or Lewis Borsellino or even a guy like Marty Schwartz if he had backtested anything. These guys don't backtest. They get a feel for the market, after developing a few hypothetical possibilities, throw a few hundred contracts around at thier levels and see if anything sticks...If that's not for you, then focus on the systematic techniques. You need to use the tools to provide the context, maybe back it up with some statistical evidense, then use your screen time.

 

[hamli]

First of all Markets in Profile seemed a more relevant read for me.

Thats a bit like asking a pit trader, like Danny Riley or Lewis Borsellino or even a guy like Marty Schwartz if he had backtested anything. These guys don't backtest. They get a feel for the market, after developing a few hypothetical possibilities, throw a few hundred contracts around at thier levels and see if anything sticks...If that's not for you, then focus on the systematic techniques. You need to use the tools to provide the context, maybe back it up with some statistical evidense, then use your screen time.

I was just curious/intrigued by tech analysis and trying to figure out where that edge comes from. At the moment I do scalp. I buy if I think something is high/low. I hold until I'm right and then sell out - I don't use any 'tech analysis'.

Even though its working for me, I'm always trying to improve. At this point, I can't figure out where the edge will come from with MP if there are no confidence levels assigned. My specialty doesn't lie in back testing. But of course, I'll still look-out for these patterns and the auction process... just my initial thoughts.

 

[Roller_1]

I was just curious/intrigued by tech analysis and trying to figure out where that edge comes from. At the moment I do scalp. I buy if I think something is high/low. I hold until I'm right and then sell out - I don't use any 'tech analysis'.

Even though its working for me, I'm always trying to improve. At this point, I can't figure out where the edge will come from with MP if there are no confidence levels assigned. My specialty doesn't lie in back testing. But of course, I'll still look-out for these patterns and the auction process... just my initial thoughts.

Just buy Nick Radges Adaptive Analysis for stocks it's like 9 bucks for the e-book. Plenty of good quality examples in there

 

[Modest]

The CME Market Profile handbook is golden...It is free

https://www.cmegroup.com/education/interactive/marketprofile/handbook.pdf

Don't use the charts but understanding Auction Market Theory definitely helps!

 

[Wysiwyg]

Poor highs and poor lows explanation ....

 

[Wysiwyg]

Preferring a discreet chart layout (less clutter), I think the best for me would be an across chart transparent band for POC + 2 or 3 nodes either side and transparent bands for the VAH & VAL + 2 or 3 nodes either side. The VAL/VAH bands could also be volatility based to make it wider/narrower as price over time action determines.

 

[CanOz]

If you were to calculate bands based on volatility then would they still represent Value Area Highs and Lows? Bands used in Auction Market Theory are the 1st and 2nd standard deviations of the Volume Weighted Average Price, the VWAP. Its a good reference and reminder of where value is developing.

 

[Wysiwyg]

Good point to drop the volatility idea. Maybe one or two nodes either side of the VAH/VAL to get a banded area rather than a straight line because from the charts i have seen there is not much precision with these nodes rather a general reference area.
So high volume node is likely consolidation area and low volume node likely breakout or rally area. (Tradingview ref.)

 

[CanOz]

Yeah, high volume acceptance, low volume rejection

 

[Wysiwyg]

Thank you. Very interesting presentation on the Mesch method using market profile. I hadn't seen that technique before. I'm disappointed that my software can't construct MP charts so that I may look at it on a variety of markets.

I didn't get the part about trading the range. She used long periods for demonstration and of course the range had been established. When range becomes the range is an interesting interpretation.

 

[Wysiwyg]

I'm thinking to trade the 5m and lower time frames, a MP with completed bell curves from a higher time frame (e.g. 1h) would be needed for 'context'.

 

[Wysiwyg]

Past pockets of low usage becoming the future trading range "we're gonna see this pattern play out again and again".

 

[Wysiwyg]

Trading is always of underdeveloped bell curves. This image shows a bell curve is incomplete and the areas of future range being established.


Then the ensuing profiles form within the larger profile for which the term "context" is derived.

 

[peter2]

You've almost got it. The bell curve is undeveloped so that's the best time to trade the range between the top and bottom value levels.

The blue dot shows the current price, so the first trade is a short from the top value area to either the mid point of the low usage area or below if you want to trail stop. The conservative trade is from top to mid point.

The next trade is available when price makes it's way back to either the top or bottom value area.

Over the next 16 months there were numerous opportunities to trade from the top or bottom value area to the mid point. After 16 months the bell curve is more fully developed (insert A) and range trading is stopped as the odds now favour a directional move. We would need to see a bell curve of an even larger time frame to get an indication of (context for) the next most likely direction.

This technique requires the functionality to generate bell curves (market profiles) of the price data for any given time frame.

I found the concept quite interesting because once the context is established (bell curve developed or undeveloped) the trading opportunities are clearly defined (trade the range or directional). Once again the data is fractal in that one could use it across any time frame.

 

[Wysiwyg]

This technique requires the functionality to generate bell curves (market profiles) of the price data for any given time frame.

WindoTrader seems to be the only dedicated seller of MP software via subscription. Dislike subscriptions.

 

[CanOz]

There are many platforms that have market profile plugins...likely one of the cheapest is TradingView but it’s volume profile only, may not be suitable for the purists

 

[CanOz]

Quarterly profiles on the dax, both the market profile and the volume profiles for comparison. Looks like a while before the dax might be “ripe”

 

[CanOz]

Yearly Dax profiles....