CISCO Futures
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Auction Market Value Analytics (tm)
Lookup: CBOT Market Profile 1985
Copyright CISCO Futures 2007
**************** Reference R1 CBOT Market Profile 1985 ******************************************
R1*. CBOT Market Profile 1985 CBOTMP85
Part i. Using the CBOT Market Profile to Improve Performance
p3 Part I is real-time Time and Sales quotation ticker plus a current CBOT
market profile
Part II is the Liquidity Data Bank, LDB, which with time & sales, gives
the condition of the market
p4 Advantages Inside and Outside the Pit
Inside: black-and-white confirmation of pit activity, plus ability to monitor
other markets
Outside: get info previously limited to pit traders
Shows the organization of the market ==> understand market activity as it
establishes value
Trader must learn ins and outs of market behavior (profile theory), must
develop skill
p5 Must become familiar with ALL the analytical indicators, and how to apply them
CBOT MP developed by Steidlmayer to explain dynamics behind market activity
Adaptable and Cost Effective: only variable cost ticker
Part ii. CBOTMP85 The Profile: The Link Between CBOT Data and the Market
p9 Markets Natural Organization: Price is volatile, Time is constant (30m),
Volume is a variable (price and time)
Brief price/time relation in moving markets, extended price/time relation
when market establishing value
Daily patterns: Range, Value Area (VA), Change, Divergence between price and value
Function of Market: find value: 1) price rises market inhibits demand, 2) price
falls encourage demand ==> equilibrium
p10 Market overreaction is met by a balancing mechanism that created equilibrium:
profile graphic
p11 CBOT Data Captures the Market: organizes the market in terms of time; Price
+ time = value; profile graphically
shows how market distributes price through time; CBOT info service
demonstrates diff between price and value;
brief price/time relationship denotes price overreaction; extended
price/time relationship gives value;
CBOT service shows price diverging from value; such divergence is early
opportunity to get on at beginning
1. Market has its own structural organization
2. That structure creates a natural profile
3. CBOT Service captures this activity in its Market Profile graphic
4. Graphic organizes markets price/time relationships that delineate
the natural profile
5. With CBOT data you can recognize opportunities in CBOT markets anywhere
in the world
p12 CBOT Data and the Fundamental Approach: perception of diff between price
and value; for off floor traders
Profile graphic example of 'normal day': 3 day types Normal, Strong Trend
and Non-Trend days
p13 Strong Trend day graphic (double distribution) and Non-Trend day (compressed)
p14 Profile visuals: why they look this way; why day-type is important (read
the behavior)
p15 What to look for: Normal - bell curve with large price range (bell curves
about 80% of time 1983,4)
Strong Trend day: two profile shapes; Non-Trend Day: short, wide profile
p16 3 'Normal' profiles with consolidation
p17 1 'Normal' profile with common variation
p18 2 'Trend Day' profiles
p19 1 'Trend Day Double Distribution' profile
Part I. CBOTMP85 What the Market is Doing: The Market Profile Graphic
p25 The CBOT Trading Day: pit hours
p27 Graphic Presentation of a Trading Session
Market establishes area of value (early is the Initial Balance, typically
first hour)
Deviations may continue, may come back
Opportunity: being able to evaluate whether value will be pulled away or not
CBOT Market Profile Service receive on-line profiles
p28 Corn first period profile
p29 Corn first 2 periods profile
p30 Corn first 3 periods profile
p31 Corn first 4 periods profile
p32 Corn first 5 periods profile
p33 Corn first 6 periods profile
p34 Corn first 7 periods profile
p35 Corn first 8 periods profile
p36 Review: High prices sometimes generate buying, low prices sometimes generate
selling
Eventually, fundamental law of supply and demand control
Most volume in value area, extremes have least volume, lowest
price/time relationship
End of day price/time relationships ==> final value area
Insight into VA movement leads to considered market judgements
Market activity is not random
What may appear random is the result of the markets natural organizational
structure
May be the logical behavior of individuals reacting to a price away
from a price (value)
Part II. CBOTMP85 The Condition of the Market: Liquidity Data Bank (LDB)
p39 Delineating Prevailing Market Conditions: Key condition = trendiness
Trend = many prices diverging from market value
Trend == Market movement which starts from a divergent price
Market without trends is a market without trading opportunity
Trends- 3 types (all start out as price trends)
Price (one time bracket) fastest, a probe
value trends (two time brackets) next fastest
value area trends (three or more time brackets) slowest
Value is validated by volume
p40 Market (price, time, volume) governing factor is time, then volume
(price + time)
Market Acceptance; price trend is early alert to possible change
volume shows acceptance ==> value trend (traders
strongest indicator)
p41 Three types of trends may move together or not: CBOT data makes them
recognizable
Fundamental approach: use price, value and value area trends to measure
current price against value
Divergence: slower value and VA trends move counter to price trend
==>trading opportunity
p42 Graphic: Price Trend to Value Trend to Value Area Trend
p43 Graphic: Price Trend
p45 Graphic: Price Trend and Value Trend
p46 Graphic: volume building below a Price Trend
p47 Graphic: All trends moving in same direction
p48 Market Conditions as Revealed by Market Behavior:
Price diverges form value in a competetive market
Price trend is a brief movement in time with light volume and low market
acceptance (1 TPO)
Value trend is a relatively slower movement with more volume and higher
market acceptance (2 TPOs)
Value Area Trend even slower movement (moves back and forth) and relates
to previous days value area
Price + Time = volume (or value). Acceptance used to separate fleeting
price trend from value & VA trends
Acceptance defined as accumulation of volume in the in VA (or in price
range of comfort)
Price can only hold 3 positions relative to VA: Above, Below, Within
Balancing Supply & Demand accomplished by price moving higher or lower
p49 Non-trending: large volume in opening range parameters (IB)
Composition of CTI codes (table) I=locals, II=commercials,
III=members for members, IV=public
Price change response:
Locals: go with
Commercials: counter at extremes
III and IV: react to produce wider price changes
p50 Using the CTI codes: Market dominated by CTI 1 and CTI 2 not very trendy,
if CTI 3, 4 more trendy
Highest volume early in day superceded later at diff price ==> divergent
==> strong momentum
Degree of certainty in days price range: VA range high ==> more volatile
p51 Dispersion of volume: volume in VA, above and below high volume price:
imbalance ==> trend graphics (2)
p52 Dispersion of volume: only for consolidation areas (normal day profile)
Average volume of 5 highest & 5 lowest prices: volume decrease ==> trend
p54 Graphic: Degree of days volume in opening range low volume
p55 Graphic: Degree of days volume in opening range high volume
p56 Graphic: Market Composition: commercial and local
p57 Graphic: Market Composition: commercial buffer
p58 Graphic: Market Composition: large residual trade
p59 Graphic: Price Activity Level Increase
p60 Graphic: Price Activity Level Decrease
p61 Graphic: Price Activity Level Increases
p62 Graphic: Degree of Certainty, Volatile, continued on P63
p64 Graphic: Degree of Certainty, not Volatile
p65 Graphic: Willingness fo Probability of Market Participants to Buy or Sell
at Higher or Lower Price
p66 Graphic: Willingness fo Probability of Market Participants to Buy or Sell
at Higher or Lower Price
p67 Graphic (2): Volume Average of 5 Highest/Lowest Prices in Days Range
p68 Graphic: Volume Average of 5 Highest Prices in Days Range
p69 Graphic: Volume Average of 5 Highest Prices in Days Range
p72 Graphic: Summary Sheet
p73 Summary Sheet: A) Type of profile,
B) Present days volume in opening range,
C) Composition of market
D) Composition of market, E) Price activity throughout days
range,
F) Degree of certainty throughout days range,
G) Willingness or probability of market
or probability of market participants to buy/sell a
higher/lower price,
H) Volume of 5 highest volume prices
p74 The Background: Price range evolves out of markets natural organization
Market overcompensates to reach balance see graphic
p75 Premium: buying/selling at a good price location
Maximize returns by 1) understanding what the market is doing, and
2) understanding the opportunities
p76 Background questions
1) Is this a trading market?, a bull?, a bear?
2) What is moving the market?
3) What are current market conditions, are they changing?
4) Is there opportunity now, what opportunity woul I respond to?
5) Is there an upcoming event?
p77 Opening Time Bracket: open relative to yesterday VA
How long is market in opening range, is there an extreme developing
Size of pioneer range, if wide ==> balance, if narrow ==> trend
2nd half hour ==> type of profile developing
Where is value developing, rel to previous VA
3rd half hour ==> now know the profile type
monitor for change or continuation, where is yesterday VA
is your earlier assessment being borne out: don't know ==> stand aside
Closing time bracket: close relative to VA: will price lead value tomorrow
p78 Examples, see p72
Market opens 3 cents higher and a normal day dist occurs
1) Price is not far enough away from value to sell, therefore wait for a
buying opportunity
2) If market retreats, look to buy, near the low for the day
3) If trade above 350, strong indication of value moving up to price
4) Sharply higher opening is often high of day. If, instead, it is middle
of range, then strong and buy Market Opens slightly higher or slightly
lower To unchanged or even sharply lower
1) You should consider buying immediately because this should be low of day
2) If not the low, condition of market has changed and you must recalibrate
p79 Learning from Experience
1) Learning from mistakes: were you
a) Trading on insufficient, unclear or not sufficiently developed data?
b) Did you miss something that seems obvious in hindsight?
2) You must evaluate the markets relative strength or weakness (a market
condition in state of flux)
a) Compare, e.g. yesterdays VA to todays, yesterdays profile type to
todays, etc.
b) Relative strength or weakness analysis is your on-line indication of
changing market conditions.
Appendix. CBOTMP85
p83 Sample of CBOT Time and Sales Ticker
p85 Examples: 25 ranging from Price Activity Increases to Market Composition
p112 General Analysis of LDB page
p114 Calculation of LDB parameters
p115 How to Order Market Profile
**************** End Reference R1 CBOT Market Profile 1985 ***********************