September Price-Volume Profile

Playing with my new software. Notice high volume points, value area, and single prints for September...

Extreme VIX Statistics

Thanks!

Thank you SRS for the detailed info. Really helps me as I'm new to Market Profile. Much appreciated!

Value Area Rule - Market Condition

Hi Cleon,

Here are some general examples of the influence of market condition on the VA rule:

When the market is an a trading range – coming into balance – you often get 1 day up 1 day down sort of action. During such a noisy environment, in general the odds of the prior day VA getting filled would be higher than average. See Chart 1

When this happens the market is effectively carving out a higher timeframe value area, which will often be reflected by a 60 / 120min low ADX. See Chart 2 (same 4 days in Bund as Chart 1)

(This biref Steidlmayer article is worth reading.)

In a trending market, an open out of value in the direction of the trend (i.e. above the VA in an up trend) that then tests back into the VA, is generally less likely to fill. Gaps against the trend – for instance an open down below the prior VA after a high-to-low day in an up trend – are more likely to fill than average (this scenario would be analogous to a pinball buy). See chart 3

Dalton: “The direction of the current longer-term auction has an obvious influence on the momentum, or strength behind the value area penetrartion. When price auctions up into value during a buying trend, for example, the chances of continuation are much better than if the market were in a downward trend."

 

There are also some conceptual issues to be considered when assessing the value area of a particular day:

1. Value is created by rotations. Although a Value Area can always be calculated, those days which auction continuously in one direction are indicative of a market that is searching for a fair price. In other words those days that exhibit little price rotation (i.e. trend days) do not produce a true Value Area.

2. Dalton: “Narrow value is a sign of poor trade facilitation and lower volume. Because volume slows price, narrow value areas are more easily traversed than wider, high volume areas. Therefore, the Value Area Rule carries a higher probability when price enters a narrow value area.”

These are just some general points. Others may disagree with them and I do not in any way wish to present myself as some sort of expert. But, I believe these examples go some way towards explaining why, when assessed without taking into account market conditions or market logic, the VA rule is closer to a 50% tendency.

Tendencies such as the VA Rule, violation stats or the HoD/LoD times, can form the strategy, but effective tactics are still needed to enter (LBR set-ups) and manage (trail stops) each trade.

SRS

Great comments guys! Thanks SRS for elaborating on the Rule as well. I pulled the quote from Market Delta, but I would assume Dalton would be the definitive source as per your comments. (Mind over Markets (p279) does not state the half-hour periods must be consecutive <= good to know!!)

Yeah Tiny, the stop would be an issue if you were trying to take this trade. When you noticed the 2nd penetration, you would have to decide whether or not to 'go with' or wait for pull back entry. My thought was simply that when we did get that afternoon pullback, if you had this data in mind, it could influence your decision on whether to be long or short around the 1200 pivot, but you would have to have some confirmation on your bias regardless I suppose. I did not take advantage of this, but it just perked my interest in looking at higher timeframe patterns which is something I am personally working on these days.

Glad to see we got some discussion going here!

As an aside, to your point SRS, I would assume that one simple condition that could affect the outcome would be the range of the initial VA. For example, the day after an NR7, you could have a very narrow initial VA, with a small gap outside of that , then two taps back inside before a trend day emerged...(more of a question than anything as I'm fairly new at this)? Whereas, I would also assume, that a wide initial VA, with a gap, then then has price retrace back into the VA for two period, could have a higher likelihood of crossing the VA range??

Would be interesting to see if Dalton broke down this Rule by looking at the ratio of the gap to the VA range or something like that.

cleon

P.S. I just realized that there was probably a trade around the likelihood of a return to the VAL after the market was not able to trade back below 1193?? There was a mini double bottom on the 5m and a 1600t div at that point (noon'ish). What do you guys think - too much hindsight, or it had potential at the time statistically?

More on the MP 80% rule

The big problem I see with this, and Cleon pointed it out in his post, is the stop loss. This is like the Larry William's OOPS setup, the Burning Dog, the 5SMA trade, or the BB Z day trades, where the stop has to be "end of day" or "none" and a target is used as the exit. This makes it MUCH more difficult to take without further analysis of the market, in my very humble opinion.

tinymjs

MP Value Area Rule (80% Rule)

As cleon pointed out in the prior post the Value Area Rule  is typically stated as:

If the market opens outside the prior day's Value Area and trades within that VA for two (consecutive *) half-hour periods, then the market has a good chance (frequently quoted at 80%) of filling that entire VA.

* Mind over Markets (p279) does not state the half-hour periods must be consecutive, just that the market show acceptance by printing inside the VA during two half-hour periods.

Day Session ES from 10th April 2008

Trading Days: 119

Open outside prior day Value Area: 76 (34 Above, 42 Below)

Two half-hour periods (double TPO) within prior day Value Area: 41

Completely filled prior day Value Area: 16 (39%)

Two consecutive half-hour periods within prior day Value Area: 40

Completely filled prior day Value Area: 16 (40%)

Completely filled prior day Value Area in single prints: 3

Obviously this is far from an extensive sample size and therefore the reliability of these stats is open to question.

However, the stats are consistent with Dalton's view in Mind Over Markets (p280):

“If a trader enters a Value-Area Rule trade without evaluating other market conditions, the probability that price will trade all the way through the value area is little better than a flip of a coin. 

"The power of the Value -Area Rule lies in your interpretation of surrounding market conditions. Through an understanding of the confluence of balance, value area width and market direction, you can identify the situations during which the Value-Area Rule offers a high degree of reliability.”

I will update theses stats in the future, if they change markedly.

 (It should be noted that the Value Area on any given day can vary across quote vendors i.e. CQG, eSignal, CISCO, Aspen, WindoTrader / Photon etc.)

SRS

VIX Futures 'Term Structure'

fchris

you can watch the interview here:

http://www.cnbc.com/id/15840232?video=866439825&play=1

Washington Post article here:

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092401377.html

fchris

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fchris

Cash S&P Prior Value Area

Chart 1: Market Profile of the Cash S&P from January through October 2004. After rallying for most of 2003, the market entered a period of rotation and came into balance around 1125.


Chart 2: Weekly Cash S&P. The red box highlights the 2004 10-month balance. Will this prior Value Area provide some support?

SRS

9/4 End of Day Volume at Price

ES - Wolfe Wave

Wolfe Wave example on 1600-tick ES.

Pattern objective is the lower trendline.


Follow up:

Not all WW work out as nicely as this!

SRS

Inflation Sep 2008