CISCO

37 Years of Excellence in Auction Market Research


   

CISCO Futures
1-303-306-1521 1-800 800 7227 Fax 1-303-306-1572
http://www.cisco-futures.com
dljones@cisco-futures.com



Profile Game Example

emini SP (UU) January 19, 2006

Copyright CISCO 2007

Tutorial Profile Game Sample

The starting point for the Game is the Overlay Demand curve data, a list of which comes with the Game. This example is for the emini SP (UU) for January 19, 2006. The five day Overlay is in balance: Upper limit is 129500, Lower limit is 127800. This market has been in balance (congesting), Jan 12 - Jan 18, a period of five days.

Since the average timeframe for a five day balance in this market is about four days, this market is a bit long in the tooth. We expect a breakout any time.

What the balance means: The market is not directional. Price is rotating up and down, forming upper and lower limits (resistance and support). A directional move up or down will cause a breakout from the balance, starting a trend.

If we are working with a balance we know where value is (in the area between the upper and lower limits). We know the market is congesting, a place for the 'responsive' trader (selling near the upper limit, buying near the lower limit). We also know where the balance gives way to trend (price moving above the upper limit is an alert for the start of an upward trend, price below the lower limit alerts for the start of a down trend). We know that the market (all participants) have agreed on value.

As traders we need to know:
what the market is doing up to this point. This is EOD information.
If it is in balance we know a good bit about it.
If it is not in balance we know much less (we will not take this path).
At end-of-day is the market flow in a particular direction?
Where is the close in the balance range (higher, lower, mid)?
What do the profile variables tell?
What is our strategy for tomorrow's market, our decision points?

Let us see what we can find.

Analysis of End-of-Day Value Analytics Data: UU 20060119
End of day data comes in three elements:
Report Table covers about 30 reference points for each of the last 3 days
Report Profiles are the profiles for the last three days
Report Overlays have the Three Day and 2 day Overlays for the last three days

The Value Analytics data is in four tables:
Appendix 1. Report Table
Appendix 2. Overlay 3 Day
Appendix 3. Overlay 2 Day
Appendix 4. Profile 1 Day

For your convenience in following the analyses, print out the Report Table in Appendix 1.

We begin our strategy development with the Report Table (Appendix 1).
Report Table is the primary training tool for parsing out the profile information. Each reference point is analytical--numeric so it can be compared on a day to day basis. A trader familiar with the display can complete the analysis for a delivery in about 5 minutes. A recommended way to proceed is to print out the report and write your comments on it. You then have a written record that is easily accessable as you track your market the next day.

Analysis
1. We note we have 5 day and 10 day balances Also: Report Overlays table (Appendix 2) below, a 3 day balance Also: Report Overlays table (Appendix 3) below, no 2 day balance Report Profiles table (Appendix 4) below, shows a double distribution profile

The starting point, market condition, shows balance for all four of the time frames. Tomorrow we may trade for breakouts or responsive. For simplicity we focus on breakouts. 

                    10 day    5 day    3 day
      Upper Limits  130050   129500   129200
      Lower Limits  127800   127800   127800
Risk can be estimated from the limits in a balanced market. Earlier research at CISCO has found that a good starting point for trading risk is the Octant, one eighth the range of the limits: for the five day Overlay (129500 - 127800 = 1700) the Octant is about 225. This value is usually near the volatility (235 from the Report Table). Traders set their own risk, based on their strategy. But it is not a good idea to set the risk so small that it is within the volatility envelope--that is just asking to be stopped out by the noise. A longer timeframe trader accepts more risk. The Octant for the 10 day Overlay is (130050 - 127800 = 2250, for an Octant of about 300).

We will be alerted for an upside breakout at 129200, then 129500, then 130050 allowing for a scale in, if desired.

We will be alerted for a downside breakout at 127800

2. Now to the reference points and their interpretation, starting at META-PROFILE ANALYSES 2a.:
There are 2 distributions for the latest day. That is a warning that balance may be in danger

# Price Lines (range) is fairly flat. That argues for continuation of balance
# TPOs declining. Argues for continued congestion
# Ticks slightly down. Argues for continued congestion
Trade Facilitation is decreasing. More facilitation argues for distribution (trend)
Volatility down. Argues for continued congestion
Initial Balance narrowing. Argues for distribution
Initial Balance TPOs decreasing. Argues for distribution
IB TPOs strongly packed in upper. Argues for distribution down
Value Area range widening. Argues for continued congestion
Value Area Point of Control stable: Argues for continued congestion
Tail upper is incomplete. Argues for more buyers higher
Tail lower is complete. Argues for no sellers lower
Range extension upper (none). More work to do higher
Range extension lower is there. No imbalance there
Attempted direction (basis POC). Up
Attempted direction (basis Rotation factor). Down

These seventeen factors for this day are quantifiable: each day is greater, lesser or equal to the previous day. Any movement is easy to see.

What is our strategy for tomorrow? Our reference points do not give us a strong directional flow. That is not surprising since the market is congesting.

The upper Tail is advertising that there may be more buyers in the woodwork. The double distribution in todays profile closed in the upper distribution--a sign of strength and directionality. And the price closed fairly near the high of the balance. This is a market that could go either way, but we would lean to the upside.

Our bet would be on an upside breakout, if there is a breakout. But, in any case we know the market condition and we know where it will change (at breakout, either upside or downside). Further, we have a pretty good handle on this market via the data in the three Reports.

In case of a breakout, what is a reasonable trading risk? CISCO has pointed out that a good starting point for breakout risk is one-eighth the balance range. For the five day overlay the range is 129500 to 127800 (1700) and an eighth is about 225. Risk is also tied into the volatility, which is 235. Understand that risk is related to the timeframe, longer timeframes have wider limits: the 10 day balance limits are 135000 and 132150 with a range of 2850 and octant of about 350. The risk you determine will be an important element of your trading strategy.

From this set of clues you can formulate a trading strategy. Yours might be different from mine, but here is an example:
1. Go long at a price above 129200 with stop of 225 (about 1/8 the 5 day balance)
If in, track the congestion with the Run Pause congestion tool
On evidence of congestion, exit
Add on as desired for successive price movements through 129500 and 130050

2. Go short at price below 127800, with a stop of 225 (about 1/8 the 5 day balance)
If in, track the congestion with the Run Pause congestion tool
On evidence of congestion, exit

3. We are concentrating on breakouts for simplicity, but a word on responsive trading
If you have a breakout that aborts rather quickly, as price moves back into the balance region you may wish to short an aborted long breakout or go long on an aborted downside breakout. You have the data for that in Report Table. A target point for the short responsive trade is 129250 (about an octant below the upper limit--or long at 128050 (octant above the lower limit).

An example of the interaction between the market and the balance Limits occurred during the Value Analytics beta test: The Sep UU 2007 0620 first broke out on the upside, turned around and tanked. The Analytics trader would have first gone long for a loss, then taken a responsive short, then because of the speed of the fall, not exited at the middle and held the short to the close for a huge profit.

The point here is that you have a lot of information from a balanced market. In the emini SP discussed here, the year 2006 saw balances about half the time. Trading only balanced markets alone will give you an edge.

Appendix 1. 
  Report Table 

  Value-Analytics Market Condition Report:     Copyright CISCO 2007  #Ticks/Iertk      0
                           Value Trading, A Page of Clues
                               UU  06 03  08:30 15:15

                      20060117         20060118         20060119

 1. MARKET CONDITION: Balances...............
 1a. Overlay Limits.........            2 Days           3 Days
Lim3 Upr - Lwr         0       0   129200  128750   129200  127800
#Dist & Clos %R                         2      70        1      70

 1b. Overlay Limits: 5 Days.........
Lim5 Upr - Lwr    130050  128450   129500  127800   129500  127800

 1c. Overlay Limits: 10 Days.........
Lim10 Upr - Lwr   130000  127500   130050  127550   130050  127800

 2. META-PROFILE ANALYSES.....
 2a.General...........
Price: Hi - Lo    129000  128350   128775  127675   129300  128325
Pri: Fst - Lst    128800  128900   128100  128350   128550  128825
# Distributions          1                1                2
# Price Lines           27               45               40
# TPOs - Total         159              198              146
# TICKS               8266            12175             9878
Td Facil Factor       5.89             4.40             3.65
VTY: 30 Min Bar        258              328              235
HI/LO % of High         98               98               98

 2b. Initial Balance...........
IB Pri: Hi - Lo   128900  128600   128775  128050   128700  128400
IB Loc: Hi - Lo       5    17          1    30         25    37
IB Range                13               30               13
IB Rng % of Day         48               66               32
IB TPO Total           118              127               55
IB TPOs Abv/Blo       8    33          0    71         87     4

 2c. Meta-Profile...........
Price VAU - VAL   128875  128600   128400  127900   129300  128600
P-Loc VAU - VAL       6    17         16    36          1    29
VA Range                12               21               29
VA POC               128800           128150           128825
VA POC TPO-SYM   BCDEJKLMNO       BFKLM            HMO
VA TPOs Upper           42               91               73
VA TPOs Lower          105               95               66

 2d. Tails..........
Tail Upper #Pri          1                5                1
Tail Lower #Pri          1                2                2
Tail Up Comment      InCompl            Compl          InCompl
Tail Dn Comment      InCompl            Compl            Compl

 2e. Range Extension.........
Rg Extension Up   128975  128925        0       0        0       0
Rg Extension Dn   128575  128375   128025  127725   128375  128375

 2f. Attempted Direction (Balanced Market).........
AD: POC                 --               DN               UP
AD: Rotn Fac            -5               -1               -2

 2g. Profile Information: Double (+) Distribution Days..........
Profile Number: 1...........
Profile Upr VAU      128925           128425           129200
Profile POC          128725           128050           128900
Profile Lwr VAL      128450           127800           128775
POC TPOS        BCDEFGJKLN       BFGHIKLM         HIMNO

Profile Number: 2...........
Profile Upr VAU      129325           129325           128675
Profile POC          129175           129175           128475
Profile Lwr VAL      129125           129125           128400
POC TPOS                                          BCDEF



 Appendix 2. 

 Table Overlay 3 Day

 UUH  20060119
 VAU - POC - VAL   128975  128625  128175
    1 129300    1  +
    2 129275    2  ++
    3 129250    2  ++
    4 129225    2  ++
    5 129200    4  ++++
    6 129175    5  +++++
    7 129150    5  +++++
    8 129125    5  +++++
    9 129100    5  +++++
   10 129075    4  ++++
   11 129050    5  +++++
   12 129025    4  ++++
   13 129000    5  +++++
   14 128975    7  +++++++
   15 128950    7  +++++++
   16 128925    8  ++++++++
   17 128900   11  +++++++++++
   18 128875   12  ++++++++++++
   19 128850   13  +++++++++++++
   20 128825   13  +++++++++++++
   21 128800   14  ++++++++++++++
   22 128775   14  ++++++++++++++
   23 128750   13  +++++++++++++
   24 128725   12  ++++++++++++
   25 128700   12  ++++++++++++
   26 128675   13  +++++++++++++
   27 128650   15  +++++++++++++++
   28 128625   16  ++++++++++++++++
   29 128600   14  ++++++++++++++
   30 128575   12  ++++++++++++
   31 128550   12  ++++++++++++
   32 128525   11  +++++++++++
   33 128500   11  +++++++++++
   34 128475   11  +++++++++++
   35 128450   10  ++++++++++
   36 128425    9  +++++++++
   37 128400   11  +++++++++++
   38 128375   11  +++++++++++
   39 128350    9  +++++++++
   40 128325    7  +++++++
   41 128300    7  +++++++
   42 128275    7  +++++++
   43 128250    8  ++++++++
   44 128225    8  ++++++++
   45 128200    7  +++++++
   46 128175    7  +++++++
   47 128150    5  +++++
   48 128125    6  ++++++
   49 128100    6  ++++++
   50 128075    6  ++++++
   51 128050    8  ++++++++
   52 128025    7  +++++++
   53 128000    7  +++++++
   54 127975    7  +++++++
   55 127950    7  +++++++
   56 127925    7  +++++++
   57 127900    7  +++++++
   58 127875    7  +++++++
   59 127850    6  ++++++
   60 127825    5  +++++
   61 127800    3  +++
   62 127775    2  ++
   63 127750    2  ++
   64 127725    2  ++
   65 127700    1  +
   66 127675    1  +


 Appendix 3.

 Table Overlay 2 Day

 UUH  20060119
 VAU - POC - VAL   128675  128400  127825
    1 129300    1  +
    2 129275    2  ++
    3 129250    2  ++
    4 129225    2  ++
    5 129200    4  ++++
    6 129175    5  +++++
    7 129150    5  +++++
    8 129125    5  +++++
    9 129100    5  +++++
   10 129075    4  ++++
   11 129050    5  +++++
   12 129025    4  ++++
   13 129000    4  ++++
   14 128975    5  +++++
   15 128950    5  +++++
   16 128925    5  +++++
   17 128900    5  +++++
   18 128875    3  +++
   19 128850    3  +++
   20 128825    3  +++
   21 128800    4  ++++
   22 128775    4  ++++
   23 128750    3  +++
   24 128725    2  ++
   25 128700    3  +++
   26 128675    4  ++++
   27 128650    6  ++++++
   28 128625    7  +++++++
   29 128600    7  +++++++
   30 128575    7  +++++++
   31 128550    7  +++++++
   32 128525    7  +++++++
   33 128500    7  +++++++
   34 128475    7  +++++++
   35 128450    6  ++++++
   36 128425    7  +++++++
   37 128400    9  +++++++++
   38 128375    9  +++++++++
   39 128350    8  ++++++++
   40 128325    7  +++++++
   41 128300    7  +++++++
   42 128275    7  +++++++
   43 128250    8  ++++++++
   44 128225    8  ++++++++
   45 128200    7  +++++++
   46 128175    7  +++++++
   47 128150    5  +++++
   48 128125    6  ++++++
   49 128100    6  ++++++
   50 128075    6  ++++++
   51 128050    8  ++++++++
   52 128025    7  +++++++
   53 128000    7  +++++++
   54 127975    7  +++++++
   55 127950    7  +++++++
   56 127925    7  +++++++
   57 127900    7  +++++++
   58 127875    7  +++++++
   59 127850    6  ++++++
   60 127825    5  +++++
   61 127800    3  +++
   62 127775    2  ++
   63 127750    2  ++
   64 127725    2  ++
   65 127700    1  +
   66 127675    1  +



 Appendix 4. 

 Table Profiles 1 Day

 Trade Date 20060119
 Number of Prices:          40
    1  129300    1 J              J
    2  129275    2 JK             JK
    3  129250    2 JK             JK
    4  129225    2 JK             JK
    5  129200    4 IJKL          IJKL
    6  129175    5 IJKLM         IJKLM
    7  129150    5 IJKLM         IJKLM
    8  129125    5 IJKLM         IJKLM
    9  129100    5 IJKLM         IJKLM
   10  129075    4 IJLM          IJ LM
   11  129050    5 IJLMN         IJ LMN
   12  129025    4 ILMN          I  LMN
   13  129000    4 ILMN          I  LMN
   14  128975    5 HILMN        HI  LMN
   15  128950    5 HILMN        HI  LMN
   16  128925    5 HIMNO        HI   MNO
   17  128900    5 HIMNO        HI   MNO
   18  128875    3 HMO          H    M O
   19  128850    3 HMO          H    M O
   20  128825    3 HMO          H    M O
   21  128800    4 GHMO        GH    M O
   22  128775    3 GHM         GH    M
   23  128750    2 GH          GH
   24  128725    1 G           G
   25  128700    2 BG     B    G
   26  128675    3 BFG    B   FG
   27  128650    4 BCFG   BC  FG
   28  128625    5 BCDFG  BCD FG
   29  128600    5 BCDFG  BCD FG
   30  128575    5 BCDFG  BCD FG
   31  128550    5 BCDFG  BCD FG
   32  128525    5 BCDFG  BCD FG
   33  128500    5 BCDEF  BCDEF
   34  128475    5 BCDEF  BCDEF
   35  128450    4 CDEF    CDEF
   36  128425    4 CDEF    CDEF
   37  128400    3 CDE     CDE
   38  128375    2 DE       DE
   39  128350    1 E         E
   40  128325    1 E         E