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

CISCO Futures Trading: Auction Markets

Index
- The Market Cycle
- The Major and Minor Auction
- Participant Behavior
- The Database
- Identifying the Major Auction: Market Condition
- Identifying the Minor Auction and Participant Attitudes
- Successful Trading




The Market Cycle
All auction markets follow a continuous cycle of balance to test to trend to end of trend to balance to test... and so on. Any of the cycle elements can be missing or unobservable because they happened so fast.

Balanced markets, (i.e. bracketing) are identified by their: - bell-shaped price-volume distributions, - well-defined upper and lower limits - stable value.

Test phase - starts with price near a bracket limit - crossing outside bracket limit - returning back into the bracket.

Trends (distributing markets) - begin when a test fails to return to the bracket (i.e. a breakout) - initiating a new type of distribution - one now with a run-pause-run-pause scenario.

Trend ends with a: - whimper if price has tracked value steadily - bang if price has overshot value i.e. a volatile trend-end

Importance of Market Condition
The condition is the framework within which the market operates. If you are a swing or position trader, "the trend is your friend". Contra trend trading would be a disaster.

But what if you are a day trader? Do you care about market condition? Well, yes. What if your indicators say to short at a given price and you know the market condition is 'trend up'. You are going against the flow. Your trade might be profitable, but the odds are not as favorable as going long with an up condition.

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The Major and Minor Auctions It takes two time-frames, or auctions to define a market.

Major Auction describes:
- the market in the longer time-frame
- its condition: bracketing, testing or trending
- its place in the cycle
- the general framework within which the market is operating
- trading the Major Auction is 'swing trading' (click on Swing Trading Package)

The Minor Auction describes:
- the current short time-frame
- what the market is doing now
- day trading (click on Day Trading Package)

A Minor Auction could be a trend inside a Major Auction's bracket, or it could be the test phase at trend end as it moves into a bracket, or it could be any sort of unbalanced/non-trending market situation.

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Participant Behavior
Four types of participant on the exchange floor are:
- locals or scalpers
- commercials
- members filling orders for the other members
- members filling orders for the public

Each exhibits characteristic behavior at critical market points:
- Scalpers seek balance at all times
- Commercials
* sell tops and buy bottoms in balanced markets
* go with the flow in trending situations
- Off-floor members can act like scalpers or like the public
- public creates demand by buying (selling) and holding.


In non-trending markets, the public is responsible for pushing price away from the balance price (value), providing the commercials with opportunities to sell tops and buy bottoms.

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The Database
- Market Profile (tm) data
* displays volume as a function of half-hour time frames
* typically bell-shaped price-volume curves
* is accrued during the day from ticks

- Liquidity Data Bank (tm) (LDB)
* market data that comes from the clearing house
* lists the current day volume traded for each price
* further breaks down the volume-at-price by type of floor participant.
* shows who was buying, who was selling

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Identifying the Major Auction: Market Condition
The Trader Control Package (TCP) uses 30 minute profile data to generate Overlay Demand Curves, showing market condition -the Major Auction.

The TCP also utilizes commercial trading volume information from the LDB reports over a period of days to track value and to confirm brackets.

Click here for an example of using the Trader Control Package
Click here for the background on using the Trader Control Package

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Identifying the Minor Auction
CISCO's LDB volume research program uses volumes from Liquidity Data Bank (LDB) reports to measure the level and type of trader interest in the market.

Analysis of changes in the volumes of floor participants determines:
- who is buying
- who is selling
- who is changing their mind
- probability of continuation
- uses the analyses in the 'Day Trader Package'

Tracking the Minor Auction keeps the trader at the forefront of the market.

Click here for an example of using the LDB volume research program
Click here for the background on using the LDB volume research program

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Successful Trading The trader who understands both the Major and Minor Auctions keeps with the market in both the short and long time frames.

Information, now available from the:
- Trader Control Package
- LDB research program is :
- vital to the longer term position trader
- quite often important to the day trader, too.

In addition, the trader must treat trading as a business.

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For more information phone 1-800-800-7227 or 1-303-306-1521