37 Years of Excellence in Auction Market Research

   

CISCO Futures
1-303-306-1521 1-800 800 7227 Fax 1-303-306-1572
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Auction Market Value Analytics(tm)

Copyright CISCO Futures 2007

Since the beginning of Market Profile(tm) in 1985 the promise of true value based trading has remained attractive but elusive. The major difficulty comes in recognizing market situations as they are developing, using pattern recognition. There are 30 or so reference points. Few traders can juggle the lot, discarding those that are not applicable to the situation at hand. Normally, traders prefer some sort of hard, numerical evidence for their trading decisions. Value Analytics is the first methodology to tie profile analyses to quantitative values.

Auction Market Value Analytics (AMVA) is an analytical, measurements based approach that puts value trading technology within the reach of all traders. AMVA combines measures of overall market condition (balance or imbalance) with current market behavior (volatility, volume, market range, trade facilitation, value, activity at price extremes, etc.). This combination not only catalogs the current market situation but also indicates it's flow and directionality.

Trade Preparation and Execution

1) End of Day Market Analysis: Preparation for Tomorrow

A) AMVA concentrates on the last three trading days. But first it takes a longer view of market condition. Balances and proto-balances are posted for four periods, 2, 3, 5, and 10 days. These time frames, when taken collectively, show market condition over the entire period of interest to day traders and most longer term traders as well. Balances give the upper and lower limits (resistance and support) for each time frame.
Condition is the framework within which all your trading decsions should be made.

B) Once you have the overlying market condition from the Overlays, you concentrate on the details of what the market did yesterday (it's value, volume, tick activity, volatility, range, initial balance, point of control, behavior at the day's extremes, etc.). A number of these 'reference points' are Market Profile concepts: you need some familiarity with MP to utilize the Value Analytics data. As a part of VA, you are provided sources/references for a brush-up. Market behavior in the current day, interpreted within the framework of the market's condition, gives a good read on 'what's happening' right now. This is the best information available on the collective opinion of all traders.

C) Lastly you turn to the previous two days to find the trajectory of this market. Is volume increasing, decreasing? Is the price range growing or not? What is happening to value and POC? Is the close nearer the top or bottom? Answers to these types of questions tell whether this market is growing, declining, directional or congesting. These are the details, the knowledge that gives you a trading edge.

D) Now you have the information needed to set your trading strategy for the next day.

a) You should know what price at which you will enter, and your add-on price (s), or other strategies.
b) You should know exactly how much you are willing to lose if you are wrong, your exit price.
c) Tomorrow Pre-Open, Confirmation or Modification of EOD Analysis (Midnight to ~7 AM)

2) Trading the Next Day, Pre-Open
Some markets begin actively trading shortly after midnight. Within an hour or two a comparison of current market behavior with the 3 day Overlay gives a graphic picture of the market's follow-through of the previous day's movement. Adjustment of your trading strategy generated last night may be needed. If so, it will be clear what has changed from the previous day (e.g. a breakout).

3) Post Open Trading (or Pre-Open Trading if You Choose)
Value is 'continuous and migratory' and the day-trader in particular must keep track of this continual migration. AMVA tools such as CMaPS track the market flow intra-day. Care must be taken to avoid over-reaction to perfectly normal fluctuation. Market reaction time is of the order of 15 minutes and you could display CMaPS in that time frame. Following ticks is counterproductive.

4) Exit Tracking, Change in Market Condition
A rule is to leave a trade alone so long as market condition is favorable. AMVA has a short timeframe analytical tool that examines market condition change relative to current conditions. If market flow information is becoming questionable, you can turn to:

Fine scale market condition: Run-Pause analysis to detect a new balance on the 15 minute time scale
Larger scale market condition: Run-Pause analysis to detect a new balance on the 30 minute time scale

Tutorial Information
Reading (decoding) the Market Profile literature has posed a problem for many. First, it tends toward pattern recognition and that always involves ambiguity. Secondly, a good bit of the published material has a poor index or none at all. AMVA eases your problem with a set of 'Lookup' tables. These tables offer a list of keywords, located with their pages in the source publication. One of the primary sources, CBOT Market Profile Manual, is free for download at CBOT.com. Another, Value Based Power Trading, is free on the CISCO site. The two by Dalton, et.al, are still in print and may be purchased on the internet.