Is it really this simple?
Below, the contents of a MP strategy primer I happened upon somewhere. Its techniques seem intuitively sound -- conventional wisdom, perhaps? -- but I lack the sophistication and depth-of-knowledge in MP to be certain. Thoughts from those with some experience welcomed! Anyone?
(Category 1)
Trading Methods For Market Profile
Only trade in the direction of the trend (Trend is determined by a rising or falling Point Of Control/POC)
Trade setup #1a: In a down trending market, when the current session opens below the previous day’s Value Area/VA enter a short trade at the previous day’s lower VA and again at the previous day’s POC/HVL placing a protective stop for both trades 1.5 points above the previous day’s upper VA.
Trade setup #1b: In an up trending market, when the current session opens above the previous day’s VA enter a long trade at the previous day’s upper VA and again at the previous day’s POC/HVL placing a protective stop for both trades 1.5 points below the previous day’s lower VA
Trade setup #2a: In a down trending market, when the current session opens within the previous VA enter a short trade at the upper VA placing a stop 1.5 points above the Day Before Yesterday’s/DBY POC or High Volume Level/HVL (the open price must be at least 2 points below the previous days upper VA)
Trade setup #2b: In an up trending market, when the current session opens within the previous days VA enter a long trade at the lower VA placing a stop 1.5 points below the DBY’s POC/HVL (the open price must be at least 2 points above the previous days lower VA)
Trade setup #3a: In a down trending market, when the current session opens above the previous days upper VA and below the DBY’s lower VA enter a short trade at the DBY’s lower VA and again at the DBY’s HVL placing a stop for both trades 1.5 points above the DBY’s upper VA (if stopped out on this setup and price remains above the stop level, change directional bias for all category 2 trade setups for the remainder of the day)
Trade setup #3b: In an up trending market, when the current session opens below the previous days lower VA and above the DBY’s upper VA enter a long trade at the DBY’s upper VA and again at the DBY’s HVL placing a stop for both trades 1.5 points below the DBY’s lower VA (if stopped out on this setup and price remains below the stop level, change directional bias for all category 2 trade setups for the
remainder of the day)
Trade setup #4a: In a down trending market, when the current session opens above the DBY’s lower VA and below the DBY’s POC enter a short trade at the DBY’s POC and again at the DBY’s upper VA placing a stop 1.5 points abve the DBY’s High Of the Day/HOD (if stopped out on this setup and price remains above the stop level, change directional bias for all category 2 trade setups for the remainder of the day)
Trade setup #4b: In an up trending market, when the current session opens below the DBY’s upper VA and above the DBY’s POC enter a long trade at the DBY’s POC and again at the DBY’s lower VA placing a stop 1.5 points below the DBY’s Low Of the Day/LOD (if stopped out on this setup and price remains below the stop level, change directional bias for all category 2 trade setups for the remainder of the day)
Profit targets for all trades should be in consideration of the risk of each respective trade and should be placed in consideration of the previous days POC, VA or HVL
(Category 2)
Trading Methods For Market Profile
Category 2 trades are based off the current sessions VA, HVL and POC with profit targets of approximately 2 points (they will generally setup after steps 1 and 2 have occurred in the market profile’s development)
When a Category 2 trade’s entrance level matches up with a previous days HVL It is referred to as a Category 2+ trade (category 2+ trades are generally good for 3 or more points)
Step 1 being vertical movement of price and step 2 being the capping of step 1
Step 1 will generally takes place during the Initial Balance/IB period of the day (the first 60 minutes) Step 2 often occurs during the IB period as well
Step 3 is when the market begins to move more in a horizontal direction than vertical direction and the bell curve begins to take shape
Step 4 is when the bell curve is becoming fully developed and its POC tries to drift towards the center of the IB, if it is not already in the center (occasionally steps 3 or 4 do not fully develop and the market enters step 1 again, this is known as minus development)
Minus development is very helpful in showing the direction of the market
(Category 1)
Trading Methods For Market Profile
Only trade in the direction of the trend (Trend is determined by a rising or falling Point Of Control/POC)
Trade setup #1a: In a down trending market, when the current session opens below the previous day’s Value Area/VA enter a short trade at the previous day’s lower VA and again at the previous day’s POC/HVL placing a protective stop for both trades 1.5 points above the previous day’s upper VA.
Trade setup #1b: In an up trending market, when the current session opens above the previous day’s VA enter a long trade at the previous day’s upper VA and again at the previous day’s POC/HVL placing a protective stop for both trades 1.5 points below the previous day’s lower VA
Trade setup #2a: In a down trending market, when the current session opens within the previous VA enter a short trade at the upper VA placing a stop 1.5 points above the Day Before Yesterday’s/DBY POC or High Volume Level/HVL (the open price must be at least 2 points below the previous days upper VA)
Trade setup #2b: In an up trending market, when the current session opens within the previous days VA enter a long trade at the lower VA placing a stop 1.5 points below the DBY’s POC/HVL (the open price must be at least 2 points above the previous days lower VA)
Trade setup #3a: In a down trending market, when the current session opens above the previous days upper VA and below the DBY’s lower VA enter a short trade at the DBY’s lower VA and again at the DBY’s HVL placing a stop for both trades 1.5 points above the DBY’s upper VA (if stopped out on this setup and price remains above the stop level, change directional bias for all category 2 trade setups for the remainder of the day)
Trade setup #3b: In an up trending market, when the current session opens below the previous days lower VA and above the DBY’s upper VA enter a long trade at the DBY’s upper VA and again at the DBY’s HVL placing a stop for both trades 1.5 points below the DBY’s lower VA (if stopped out on this setup and price remains below the stop level, change directional bias for all category 2 trade setups for the
remainder of the day)
Trade setup #4a: In a down trending market, when the current session opens above the DBY’s lower VA and below the DBY’s POC enter a short trade at the DBY’s POC and again at the DBY’s upper VA placing a stop 1.5 points abve the DBY’s High Of the Day/HOD (if stopped out on this setup and price remains above the stop level, change directional bias for all category 2 trade setups for the remainder of the day)
Trade setup #4b: In an up trending market, when the current session opens below the DBY’s upper VA and above the DBY’s POC enter a long trade at the DBY’s POC and again at the DBY’s lower VA placing a stop 1.5 points below the DBY’s Low Of the Day/LOD (if stopped out on this setup and price remains below the stop level, change directional bias for all category 2 trade setups for the remainder of the day)
Profit targets for all trades should be in consideration of the risk of each respective trade and should be placed in consideration of the previous days POC, VA or HVL
(Category 2)
Trading Methods For Market Profile
Category 2 trades are based off the current sessions VA, HVL and POC with profit targets of approximately 2 points (they will generally setup after steps 1 and 2 have occurred in the market profile’s development)
When a Category 2 trade’s entrance level matches up with a previous days HVL It is referred to as a Category 2+ trade (category 2+ trades are generally good for 3 or more points)
Step 1 being vertical movement of price and step 2 being the capping of step 1
Step 1 will generally takes place during the Initial Balance/IB period of the day (the first 60 minutes) Step 2 often occurs during the IB period as well
Step 3 is when the market begins to move more in a horizontal direction than vertical direction and the bell curve begins to take shape
Step 4 is when the bell curve is becoming fully developed and its POC tries to drift towards the center of the IB, if it is not already in the center (occasionally steps 3 or 4 do not fully develop and the market enters step 1 again, this is known as minus development)
Minus development is very helpful in showing the direction of the market
Is it really this simple? The list certainly makes it look simple - but NO WAY - it's way more difficult than the list of setups makes out.
First of all you need to understand, memorize and instantly recognize each setup and concept on that list. Each trade setup must be ingrained in your subconscious and be a reflex action. Remember that at any one point in the market multiple setups can happen at the same time. What happens if 4 MP setups occur simultaneously and 2 say go long and the other 2 say go short? What if 3 say go long and 1 says go short? Do you give each of them equal weighting or do certain setups carry more weight than others.
I think that it was Dennis Ritchie that said that you could give a bunch of traders (in this case The Turtles) a set of highly profitable trading rules and yet you would get vastly different results from the group from extreme losses and wiped out accounts to super star traders with triple digit percentage returns. This may be the same case with this set rules - one trader can make a fantastic profit with these strategies and another will wipe out his/her account.
If I was you I'd do the following - and yes, this is going to take you a lot of time to do and it's not going to be easy - but then nobody said that life was going to be easy and there's no easy money in this business - it's all hard earned.
Print out the list of strategies and rules. Take one rule at a time and understand exactly what it means and visualize how you would recognize it on an MP chart. Think and plan where your stop and targets would be. Imagine executing the trade. Now run historical data through your charting system at high speed (I use 90X which allows me to fit 1 hour into 45 seconds and a day into a few minutes) and see if you can spot that setup. Perhaps pause the chart at that point and speak out loud to yourself so you can hear the words and describe the setup and what you are about to do. If your charting system allows it then perhaps you can enter a simulated trade with the playback - if not perhaps jot down the trade on a piece of paper - whatever works for you.
Now continue through as much data as possible until you've seen at least 10 of these setups and reacted to and understood each one. Are they becoming easier to recognize? If you are instantly recognizing them and doing the right thing then move onto the next setup - otherwise keep going until you feel that you've mastered that setup. Once mastered try the next one. Start the same replay sequence and try and find the next setup. Once you've identified all setups and are comfortable with them then try and spot multiple setups, confirming setups and contradicting setups. Which ones work? Is there a dominant setup that you believe requires more weighting when you see it? Are some of the setups that you've listed flawed and don't hold any water? Are some of them so bad that you could trade in the opposite direction to the stated strategy and make better trades that way?
I hope these ideas help you.
Consider any other discipline or game that you've tried to master in the past. Has anyone ever expected you to learn all the rules or techniques right at the outset? Probably not, you were introduced to the basics and built up from there right? One step at a time.
First of all you need to understand, memorize and instantly recognize each setup and concept on that list. Each trade setup must be ingrained in your subconscious and be a reflex action. Remember that at any one point in the market multiple setups can happen at the same time. What happens if 4 MP setups occur simultaneously and 2 say go long and the other 2 say go short? What if 3 say go long and 1 says go short? Do you give each of them equal weighting or do certain setups carry more weight than others.
I think that it was Dennis Ritchie that said that you could give a bunch of traders (in this case The Turtles) a set of highly profitable trading rules and yet you would get vastly different results from the group from extreme losses and wiped out accounts to super star traders with triple digit percentage returns. This may be the same case with this set rules - one trader can make a fantastic profit with these strategies and another will wipe out his/her account.
If I was you I'd do the following - and yes, this is going to take you a lot of time to do and it's not going to be easy - but then nobody said that life was going to be easy and there's no easy money in this business - it's all hard earned.
Print out the list of strategies and rules. Take one rule at a time and understand exactly what it means and visualize how you would recognize it on an MP chart. Think and plan where your stop and targets would be. Imagine executing the trade. Now run historical data through your charting system at high speed (I use 90X which allows me to fit 1 hour into 45 seconds and a day into a few minutes) and see if you can spot that setup. Perhaps pause the chart at that point and speak out loud to yourself so you can hear the words and describe the setup and what you are about to do. If your charting system allows it then perhaps you can enter a simulated trade with the playback - if not perhaps jot down the trade on a piece of paper - whatever works for you.
Now continue through as much data as possible until you've seen at least 10 of these setups and reacted to and understood each one. Are they becoming easier to recognize? If you are instantly recognizing them and doing the right thing then move onto the next setup - otherwise keep going until you feel that you've mastered that setup. Once mastered try the next one. Start the same replay sequence and try and find the next setup. Once you've identified all setups and are comfortable with them then try and spot multiple setups, confirming setups and contradicting setups. Which ones work? Is there a dominant setup that you believe requires more weighting when you see it? Are some of the setups that you've listed flawed and don't hold any water? Are some of them so bad that you could trade in the opposite direction to the stated strategy and make better trades that way?
I hope these ideas help you.
Consider any other discipline or game that you've tried to master in the past. Has anyone ever expected you to learn all the rules or techniques right at the outset? Probably not, you were introduced to the basics and built up from there right? One step at a time.
I think this is wonderful advice at every level -- and, by the way, you're preaching to the choir, which is not to say I don't appreciate every word of it.
I recently found myself in an email exchange with someone who dismissed MP as, essentially, nice enough in theory but show me the setups. In other words, show me where to insert tab "a" into slot "b". I wonder if this attitude is commonplace -- and, if it is, if this lies at the root of the reason why most would-be traders fail.
The irony -- and I base this on my own admittedly rudimentary study of Market Profile -- is that Market Profile is simple, in the best sense -- in the sense of it offering view of market structure that is elemental and profound. But the trick, as you've suggested, is in getting the "rubber to hit the road" -- in so incorporating its concepts into your subconscious that they become second nature, so that you not only know when you should insert tab a into slot b, but also know when you're better off ignoring the tabs and just gluing the damn thing together.
To that end, I found the MP videos on this website nothing short of revelatory. Why? Not because I saw anything there that I didn't already "know" in the most facile sense -- i.e., single prints getting filled in, TPO congestion marking support or resistance until...well, until it doesn't, in which case look out below (or above), etc. But what I wasn't expecting was what a difference 90x playback speed would make in my evaluation of price action with regard to the standard MP waymarkers (UVA, LVA, POC, and their in-development counterparts). Basically, I found myself repeatedly and consistently anticipating the next move, based on my understanding of how price should act based on the evolving market profile -- without indicators or other crutches of any kind. Believe me, I'm not like this in real time. Apparently, the speed of it all didn't give me a chance to second-guess my choices, which were invariably correct. In real time, I would've choaked as the price move against me for five or ten or fifteen minutes. At 90x speed, the adverse retracement was over in a flash, and I was back in the green.
It really is a mental game, isn't it?
I recently found myself in an email exchange with someone who dismissed MP as, essentially, nice enough in theory but show me the setups. In other words, show me where to insert tab "a" into slot "b". I wonder if this attitude is commonplace -- and, if it is, if this lies at the root of the reason why most would-be traders fail.
The irony -- and I base this on my own admittedly rudimentary study of Market Profile -- is that Market Profile is simple, in the best sense -- in the sense of it offering view of market structure that is elemental and profound. But the trick, as you've suggested, is in getting the "rubber to hit the road" -- in so incorporating its concepts into your subconscious that they become second nature, so that you not only know when you should insert tab a into slot b, but also know when you're better off ignoring the tabs and just gluing the damn thing together.
To that end, I found the MP videos on this website nothing short of revelatory. Why? Not because I saw anything there that I didn't already "know" in the most facile sense -- i.e., single prints getting filled in, TPO congestion marking support or resistance until...well, until it doesn't, in which case look out below (or above), etc. But what I wasn't expecting was what a difference 90x playback speed would make in my evaluation of price action with regard to the standard MP waymarkers (UVA, LVA, POC, and their in-development counterparts). Basically, I found myself repeatedly and consistently anticipating the next move, based on my understanding of how price should act based on the evolving market profile -- without indicators or other crutches of any kind. Believe me, I'm not like this in real time. Apparently, the speed of it all didn't give me a chance to second-guess my choices, which were invariably correct. In real time, I would've choaked as the price move against me for five or ten or fifteen minutes. At 90x speed, the adverse retracement was over in a flash, and I was back in the green.
It really is a mental game, isn't it?
Those are excellent comments poster and I agree with everything you've said. Most of what you read and hear about Market Profile are theories and methods for explaining market behavior and not black and white setups that you can trade.
Yes it is a mental game - and this is what is impossible to learn when you're paper trading. You don't feel the mental pressure of a losing position when you're paper trader - only when your money is on the line.
This has got me to thinking about how paper trading could be made more realistic - in other words, how can we create mental anguish and joy during the learning phase to help us cope for when we're trading real money. How can we watch a playback and experience what we would experience in the markets?
One thought I had would be to attach a physical device to yourself and hook it up to your paper trading system. This device would hurt you in some way when your position was moving against you. Perhaps intermittent small electric shocks... The anticipation of this physical torture might create the same psychological stress that one experiences in the market. You know that if you close your position that the shocks will stop but if you keep it open you have the potential of a large reward (select your reward: chocolate for example).
This has got me thinking about all sorts of Pavlovian physical responses that can be hooked up to the practise/learning system. If your position moves to the full target (say 5 points) and you bailed before that OR if you don't close your position at the stop and take a larger stop then the voltage is increased and you get a whacking great shock. This sort of punishment would quickly get you to following your rules.
Unfortunately all that I have mentioned above is incentivising by negative response. But then perhaps that's what we're trying to do. Create that same feeling that we experience in real time trading and learn to cope with it outside of the markets. I'm starting to ramble now so I'll cut this short here...
Yes it is a mental game - and this is what is impossible to learn when you're paper trading. You don't feel the mental pressure of a losing position when you're paper trader - only when your money is on the line.
This has got me to thinking about how paper trading could be made more realistic - in other words, how can we create mental anguish and joy during the learning phase to help us cope for when we're trading real money. How can we watch a playback and experience what we would experience in the markets?
One thought I had would be to attach a physical device to yourself and hook it up to your paper trading system. This device would hurt you in some way when your position was moving against you. Perhaps intermittent small electric shocks... The anticipation of this physical torture might create the same psychological stress that one experiences in the market. You know that if you close your position that the shocks will stop but if you keep it open you have the potential of a large reward (select your reward: chocolate for example).
This has got me thinking about all sorts of Pavlovian physical responses that can be hooked up to the practise/learning system. If your position moves to the full target (say 5 points) and you bailed before that OR if you don't close your position at the stop and take a larger stop then the voltage is increased and you get a whacking great shock. This sort of punishment would quickly get you to following your rules.
Unfortunately all that I have mentioned above is incentivising by negative response. But then perhaps that's what we're trying to do. Create that same feeling that we experience in real time trading and learn to cope with it outside of the markets. I'm starting to ramble now so I'll cut this short here...
A diabolical concept, sir -- and probably spot on! After all, studies have shown that, as a rule, we feel the pain of loss more acutely than we do the joy of acquisition.
Interesting, though, that I've noticed no difference in my emotional response to simulated trading and the real thing. I get so caught up in the game, I am just as likely to pull my trade early with play money as I am with real cash. I wonder if I should seek professional help?
That's great if you can do that.
This is a bit like an arcade game - the reason that you don't want to get shot up 3 times is because you'll have to put another fistfull of quarters in to play again. This gives each game the emotional intesity associated with life and death situations.
This is a bit like an arcade game - the reason that you don't want to get shot up 3 times is because you'll have to put another fistfull of quarters in to play again. This gives each game the emotional intesity associated with life and death situations.
Yes, the chess game is also so damn absorbing. Which is one reason I'm almost relieved to hear that, no, it's not as "simple as that."
So, in that spirit, please indulge a newbie question...
In my dangerous and no-doubt ignorant tinkering with MP, I've been playing around with combining of sessions into "super-MPs". In other words, creating a MP to describe the contours of price action from the last major swing low to the last major swing high, etc.
Here's a specific example. One MP would run from 1/03 to 1/11 (the swing low of the year to the swing high) and another would run from 2/07 to 2/16 (the most recent major swing low swing high). I plot those out, and here's what I see...
a) 1/03 to 1/11 POC at 1293, which has defined the market top since that 1/11 high.
b) 1/03-1/11 LVA at 1276, which is awfully close to the 1275.50 UVA I get for the 2/07-2/16 swing
c) there's that band of single prints from 2/14 running from 1270 to 1271.50
d) and then, get this, if I create a giant MP from 1/03 through the Friday close, the POC is at 1268.25. A big fat bulge that, visually at least, appears begging to be touched.
I'm looking at this and thinking in terms of your 90x playback. If this were running at 90x speed, I don't think there's any question about it: I'd be gettin' shorty.
But the markets are not running at 90x speed, and a little knowledge, we all know, is a dangerous thing. Still, I can't help but wonder if we have some more work to do on the downside before we're ready to charge to new highs.
Is it really that simple?
Wait...I'm not done...
If I make a single giant MP from the Oct low through the 1/11 I get a super POC of 1269.75.
Parked precisely below all those single prints.
Nah. It can't be that easy.
Someone stop me before I profile again...
I've noticed that as much as I Super-Profile all it can give me is a bias for the days or weeks ahead. I might be more inclined to jump on a breakout to the downside if for example I was biased as per your analysis.
This is purely my opinion - which I accept may be wrong - but the Super-Profile is great (and a very valuable tool) for swing trading but is only a hint for day trading. If the other-timeframe trader auctions us up then we need to go with what the profile is telling us and the Super-Profile doesn't help much.
Along those lines I view the Super-Profile a bit like an oscillator inasmuch as it can signal short for a long time before that short works out.
Again - just an opinion.
Yes, and I see a small bank of single prints also beckon from the 1290s...
Still a downside break might be good for a little ride. Also, you're no doubt aware of the better-than-even-odds propensity for post-opex weeks to countertrend strong trending opex weeks.
Now the question is, when does one's predisposition prepare one to take advantage of an opportunity, and when does it become a mere bias that blinds one to the signals that the market is actually sending?
quote:No - I haven't heard of that one - is it a "saying" or did someone back test it? If back tested, is there a link showing the results?
Originally posted by poster
Still a downside break might be good for a little ride. Also, you're no doubt aware of the better-than-even-odds propensity for post-opex weeks to countertrend strong trending opex weeks.
quote:...and is it the Market Profile that signaled that swing move down or was it some other external shock factor that made it happen? (Such as rebel attacks on oil refineries in Nigeria pushing oil prices up...)
Now the question is, when does one's predisposition prepare one to take advantage of an opportunity, and when does it become a mere bias that blinds one to the signals that the market is actually sending?
I think trading the stock index futures is one of the most rewarding and toughest things. Few logic in intraday ES moves for example. It cannot be traded using typical candelstick, patterns, indicator methods. Only pretested strategies may be profitable on this symbols. Don't say it's impossible to trade it discretionnarily, just say there will a great part of chance.
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