CISCO Futures
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Auction Market Value Analytics (tm)
Lookup: CBOT Market Profile 1991
Copyright CISCO Futures 2007
**************** Reference R4 CBOT Market Profile 1991 ******************************************
R2. CBOT Market Profile 1991 Free download: www.cbot.com/cbot/docs/handbook.pdf
Note: CBOT Market Profile 1991 is a revision of CBOT Market Profile 1985. Neither have an index.
Free Manual Download www.cbot.com/cbot/pub/page/0,3181,1184,00.html
CBOT Market Profile 1985 is reviewed earlier (Ref R2).
Part 1. CBOTMP91 Reading the Market Profile Graphic (Intra-day) (Markets Organizational Structure)
p3 Pattern of market: balance, imbalance, balance,...
Bell shaped profile, a part of market development
p4 TPO count & Initial Balance less important in 24 hour markets
Profile "vastly simplifies" the trading process
Finite number of behavioral patterns
p5 Distribution, Profile is decision support tool, not indicator, trading decisions
require judgment, dual auction, price rise brings in more buying
market moves up to shut off buying, price advertises for opposite response
p6 excess (too high/low)
p7 balance/imbalance, balance ==> fair price, 2 time frames: short & other
Short term activity ==>day timeframe, long term activity ==> other timeframe
p8 other: buy low at excess (low volume), short: trade at high volume
p9 Initial balance for short: two sided trade, price above, at or below value
Focus is on longer term trader, IB, TPO count, range development becoming less important
p11 TPOs = basic unit for analysis: no RE ==> short: in control, pioneer range, type of day
p12 range development, pioneer range, type of day, 4 day types: examples p15, 16, 17, 18
p19 Kinds of Range Development
Normal Day p15
Balanced, Short term in control, 80% of volume short term
Neutral Day p18
Balanced, Short term in control, 70% of volume short term
Normal Variation Day (p16)
Balance, imbalance both, divided control, if little RE 80% of volume short term, lot of RE, then 40%
Trend Day p17
Un-balanced, Long term control, 60% long term volume, 40% short term
p21 MP graphic: extremes when other: & short: compete, more tail (two single prints) more compete
p25 Value generated by rotations
p33 TPO value identified ("Steidlmayer calls it")
TPO value methodology originally published by CISCO 1987:
1) Market Logic School Alumni Letter Apr 13, 1987
2) S&C Magazine Sep 1987
p34 2 types of behavior: 1) results in unbalanced directional move, 2) balanced rotations
p35 Activity in VA: if other: then day value is not same as longer term value
p36 RE pioneer range (1st), tail on close not confirmed auction completion
p37 Both buying and selling (tail followed by RE)
p45 Expected: price stays with value
Buying below value (responsive)
Selling above value (responsive)
Buying above value is unexpected (initiating)
Selling below value is unexpected (initiating)
Longer term (other:) trader creates imbalance
Part 2. CBOTMP91 Profile for Long Term Trends (Inter-day) (Markets Organizational Structure)
p50 Focus on 'other: trader'--long term auction chart, plot of sequential value areas
p50 The wider the 70% range the better the trade facilitation
p51 70% Range Calc: High volume price, add 2 above, 2 below until 70% of volume reached
Note: Market Profile value area is defined to be from (cleared) volume (CBOT LDB Report)
p53 Failed RE: single print tail, multiple TPO tail if outside IB, 2 or more TPOs extreme--no follow-thru
p54 Market in balance: has tails, RE, central bell, may then breakout, ex. p66
p54 Failed RE (p55) has incomplete tail
p56 Failed RE outside IB, V makes a tail & rebounds back into IB
p57 Failed RE 2 TPOs on extreme (bottom)
p58 Failed RE (could be regular auction, but context says failure)
p59 Behavior pattern: imbalance, balance, test, imbalance
p62 Long term chart example
p64 For data p65: VA from volume (volume not shown)
p65 Volume analysis explains the graphic interpretation (rollover problem)
p65 Failed RE often indication that market wants to go in that direction (attempted dir)
p66 9/02/86 opens below VA prev (but new delivery!), balances, then drops
p68 9/02/86: top of move ==> balance ==> new move down
"a balanced market is in position for a directional move"
p70 9/03/86: open lower, balanced, RE down, initiating selling, responsive buying
p72 9/04/86: open lower (VA), RE down, bad bottom, balance, ?continuing down?
p74 9/05/86: open lower (VA), all trading in IB, balance, good tail, ?tnd over?
p76 9/08/86: open lower (VA), good bottom, bad top, balance, ?tnd over?
p78 9/09/86: open above (VA), good top, bad bottom, asym down, low vol, ?testing?
p80 9/10/86: open above (VA), good bottom, balancing, bad top, ??
p82 9/11/86: open lower (VA), good top, RE down, bad bottom, ?weak? finally volume on display!
p84 9/12/86: open inside VA, good top (A), RE down, good tail (C), ?balance?
p86 Imbalance, balance, test, imbalance ==> facilitates trade
p87 Unbalanced markets have a greater potential for RE
Part 3. CBOTMP91 The Perception of Value Fuels Market Activity
p94 "Value is the motivating force behind all transactions"
Market Sentiment: confident (stable) or uncertain (volatile)
p95 Perception of event (not actual development) leads to confident (stable) or uncertain (volatile)
Price - Value relation not stable because conditions always in flux
Price moves away from value for three different reasons (dynamics different)
p96 Reason 1: surprise events ==> short term impact on value
Reason 2: unlikely events ==> intermediate term impact on value
Reason 3: likely events ==> long term impact on value
p97 Surprise events: appropriate response comes from knowing what is happening
No hard and fast rules
p98 Unlikely events: price and value move together
p99 Both Surprise & Unlikely require judgement
p100 Likely events ==> value moves ahead of price long term value)
p101 Why classify? Trading before unlikely event ==> high risk, likely event ==> lower risk
p102 Market Sentiment: confident ==> imbalance, uncertain ==> balance
p103 Example of balance (uncertainty) moving to trend (confidence)
p104 Reference points from profile (VA, IB, RE, Tails) not all equal
Careful! Try to go with other: trader
p105 Anticipating Market Development: Surprise ==> price leads value, if likely ==> value leads price
Current perception ==> markets degree of balance or imbalance
p106 Confidence level: estimate probability of price change
Good trade location: identify support & resistance
Determine if: you will buy above value/sell below value
Part 4. CBOTMP91 Market Profile Data and the Distribution Process
p112 Day no longer constant as measure of market activity: new beginning may not be start of new session
p113 New CBOT characters
p114 Most of capital comes from off floor, worldwide capital can enter any time
p115 Graph of T-bonds US & London 1991 Feb 14 - 15
p116 The 'natural' unit (not nec a session), still use TPOs for distribution measure
p117 Value not same for short: and other: short: trades value today, other: trades longer term
p118 MKT Distributing = trend (capital flow), developing = sideways
p119 Distibution on vertical, development on horizontal ==> visual direction of capital flow
Long term traders (other:) move the market directionally
p120 Short: in control ==> rotations, balance
p121 Other: in control ==> trend, imbalance
p122 Four step behavior: 1) beginning, trend, 2) balance, 3) test, 4) beginning, trend
p123 Market is whole (4 steps), individual markets are the steps, mkts framework is in a distribution
p124 Four step process graphic on p125, p127
p129 How distribution relates to market activity: +/- 1st std dev ==> value, 3rd std dev ==> price excess
p130 Directional move is beginning of a distribution: example p131
p132 Time frames: need to separate short: from other: example p133, balance and imbalances with volumes
p134 Steidlmayer dist (1) balance to up trend, a 1,2,3 distribution 1st => 2nd => 3rd
p135 Steidlmayer dist (2) balance to down trend, a 1,2,3 distribution 1st => 2nd => 3rd
p136 3,2,1 (3rd to 2nd to 1st), also p137
p138 J distribution: 2 separate imbalanced dist ==> bal, example p139
p140 Confidence and Uncertainty: trend and balance: better the balance the more volatile
A price will stop the distribution, another will be the center of the new balance ex. p141-142
p143 Two ways the market breaks control of mean: distance or time
p144 Distance or time: directional far enough breaks away form center control, long time compresses balance
p145 Current price control = sentiment: influence = forward takes mkt away from control, backward returns to it
p146 Real Life Example: p147, 148, 149, 150, 151, 152, 153, 154, 155, 156, 157, 158, 159, 160, 161, 162, 164
p165 Continuation: break into parts, examine asymmetry, example on p165 and p166
p167 Market in balance is in position for directional move: single session or longer time
p169 Shifting from balance to imbalance: example for a single session
p170 Shifting from balance to imbalance: example for a 4 day session
p171 Distributing ==> forward price influence, developing ==> backward price influence
p174 Recognizing trend start: use reference points to find critical price areas (VA, RE, Tails,...)
p175 Example of long term: also p176, 177, 178, 179, 180, 181, 182
p183 Sum up: principle: if mkt cannot facilitate trade on upside, it will test downside
Studied distributions here, real life would include conditions that affect value also
p184 Conclusion: Four step behavior: 1) beginning, trend, 2) balance, 3) test, 4) beginning, trend
Part 5. CBOTMP91 Using Market Profile Tools to Support Trading Decisions
p189 Background: Use the distribution process to identify critical reference points
Move from session-oriented approach (no open and close in the old sense)
Profile captures and updates markets natural units, units that begin with a flow of money
p190 Directional move on vertical axis (= cash flow), Up movement = cash in, down = cash out
Market moving up and bringing in more buying (volume) it must go higher, ditto for down move (distribution)
Market moves up until it brings in selling, establishing a (balance) range
Balance ==> bulge around median
Behavior pattern: imbalance, balance, test, imbalance
p192 Key reference points: 1) Price area at top and bottom of the units range, 2) Mean of the control price range
3) Price area of top and bottom of the developing value area
Minus Development: direction of capital flow (distribution)
p193 Example of critical price areas
p194 Minus development in soybeans, example p195
p196 Types of minus development: failure to break out of a control, a price gap, unexpected reaction to news
p198 Breaking a session into its parts: p199 Balance, p201 adding a minus development + new balance
p203 adding minus development, then buying tail
p205 adding up move taking out some minus development
p207 Whole session graphic
p212 General Direction of Capital Flow, graphic p213, 215, 217, 219, 221, 223
p224 Present Location or Condition of Market: Balance or imbalance graphic p225
p228 Conceptual Foundation: seeing near term activity in a longer term context
1) Market is distributing in all time frames simultaneously and each dist. has a high, low and value
2) Mean of VA controls activity in the dist. until price leaves that dist.
3) Mean of longest timeframe controls activity in all shorter time frames
4) Market has only two modes, distribution and development graphic p229
p231 A Practical Application, the markets time frame organization: ref points in long and intermediate timeframes
p232 Long-term time frame graphic p233
p234 Intermediate time frame graphic p235
p236 Relate intermediate back to long graphic p237, 239
p240 Near-term Activity graphic p241
p242 Near-term Activity graphic p243
p244 Near-term Activity graphic p245
p246 Near-term Activity graphic p247
p248 Near-term Activity graphic p249
p250 Intermediate-term Activity graphic p251
p252 Near-term Activity graphic p253
p254 Near-term Activity graphic p255
p256 Near-term Activity graphic p257
p260 Intermediate-term Activity graphic p261
p262 Sum Up: Market moves from control price to control price, propelled by money entering or leaving
Find sentiment by monitoring behavior
MP identifies control price, can track participants behavior by how they react to control
Participants accept control or reject it (move away)
Part 6. CBOTMP91 Liquidity Data Bank (LDB) Volume Analysis
p267 LDB used for signs of continuation, how well market is facilitating trade
Volume increasing as price moves up (down) market is facilitating trade
Volume created by buying different from volume created by selling, so relate volume to distribution
p268 Description of an LDB report, example p 269
p270 Context important, this time it is buying graphic p271
p272 This time it is selling, higher volume at top suggests strength graphic p273
p274 More volume at top, cash flow in, minus development, graphic p275
p277 Categories in LDB report (who is doing what)
p278 Efficient market ready to move graphic p279, 281
p282 Efficient market ready to move graphic p283
p284 Higher and Wider Value Area graphic p285
p286 Down Distribution with down Development graphic p287, 289
p290 Conflict. Directional move up, VA near the bottom; suggests the up move could be coming to an end
p291 Conflict continued, graphic p291
p292 Up Move Comes to an End, includes volume graphic p293
p294 Continuing at a Decreasing Rate graphic p295
p296 Coming Into Balance graphic p297
p298 Continuing to Trade Sideways graphic p299
p300 Market Changes Direction graphic p301
p302 Looking at CTI2 Volume: Commercials normally trade in VA (responsive), unexpected buy/sell at extremes
p303 Commercials normally long-time frame, if not, may be value is too low (high)
p304 CTI2 Activity Overwhelming a Distribution (Buy/Sell LDB data) tells why graphic p305
p306 LDB Report for 9/10/90 graphic p307
p308 CTI2 Selling Activity Flat top from commercials graphic p309
p310 CTI2 Buying Activity Flat bottom from commercials graphic p311
p312 CTI2 Activity at the Top of a Move graphic p313
p314 Wheat Futures 6/22/92 - 7/13/92 graphic p315
p314 CTI2 Buys Above Value graphic p317
p318 T-bonds New Beginning on 10/09/92 graphic p319, 320, 321
p322 Testing the Downside Again 6 Days graphic p323
p326 Relating a Whole LDB Report to Activity at top of long uptrend graphic p327
p328 Reading the LDB: Reference points Total volume, volume at top and bottom of range, volume value area,
TPO value area, Volume top half vs volume bottom half, CTI2 activity graphic p329, 331
Total volume, volume VA and CTI2 activity all + (3 of them)
Volume Top 4 vs bottom 4 ticks, TPO value area, Volume top half vs bottom half all - (3 of them)
not strong up on net
p333 To Sum Up: Use of volume in VA, CTI2, LDB volume analysis adds to standard profile analysis.
p335 Conclusion
Value (control price) for each time frame
Minus development to monitor cash flow
Opportunity is still price away from value
Goal still to judge whether price will return to the old value or go on to form a new control
Still must know markets time frame organization
**************** End Reference R4 CBOT Market Profile 1991 *************************************