CISCO Futures
1-303-306-1521 1-800 800 7227 Fax 1-303-306-1598
Internet http//www.cisco-futures.com
Email dljones@cisco-futures.com
The CISCO Futures Trading Game
Introduction
The futures trading game is designed for a trader to apply Auction Market principles
to actual trading situations. The play begins with an actual commodity as it is trading
on a particular day. Trades are taken within a framework, the 'house basic strategy'
provided by the game. Trading data comes from the Trader Control Package (TCP). The house
strategy always starts with a balanced market and lists entry and exit points or stops
for each trade. There are two options in the house strategy; 'breakout'
swing trading and 'responsive' day trades. Some small modifications to the basic trade may
be made as a result of current changes in the market, generally in adjusting stops.
House trades are posted and cataloged.
Data used in the game:
Definition
Procedure
Analyses used for trading the Game
Intra-Day Data: Trading Strategy Adjustment to Changing Conditions
The game lies in 'second-guessing' and beating the house strategy. One 'wins' if one's own strategy
on a trade beats the return of the house. The player has access to information not used
by the house: Meta-Profile reference points such as tails, initial balances, attempted direction,
value areas, volume and close location. On the basis of these data the player can decide not to take a
house trade entry, or to take the trade but to adjust the stop differently, or exit at a point different
from the house.
The game proceeds day-to-day in half-hour steps (periods). Play starts at the third period of the day,
which allows a determination of that day's attempted direction, initial balance and the current day's
value area relation to that of the previous day. At each half-hour step the player has access to the
house strategy and to the accumulated Meta-Profile information to that point in the day.
Throughout the changing market conditions of the day, the player pauses at each half-hour
interface and makes the necessary trading decisions. If these decisions differ from the house strategy,
the player notes the differences and continues to the next half-hour or rolls into the next day. At the end
of a (house) trade the player compares results and scores the difference in dollars.
From TCP: Market Condition, Limits, Octants, Distribution Mid-point
From Intra-Day: Initial Balance, Tails, Congestion, Attempted
Direction, Value Area and Volume (LDB)
From Combined TCP & Intra-Day: Longer term distribution (Overlay)
with the current Meta-Profile superposed.
Definition:
Market Profile: Profile from CBOT LDB Data (CBOT futures only).
Meta-Profile: Profile from tick data (all markets)
CMaPS produces Meta-Profiles (tick based).
To play the game, use CMaPS (free on Saturday). Follow the sample for
instructions on how to play. Meta-Profiles are available in CMaPS. TCP data
is not. Use the profile value in place of TCP information. If you are
on a CISCO free trial, you can access the TCP data also.
CMaPS Sample
Bullish, as used here, means positive for continuation of the current
behavior of the market: If a market is trending down and, say, the
volume is increasing, that is 'bullish' for continuation of the down
trend.
1. Post the TCP market condition data from previous day
Items of Interest: (Bullish = positive for trend)
A. Attempted direction: market follow-through is bullish
B. Volume. High and increasing, or just very high, is bullish.
C. Value Area. Directional with the move is bullish.
Above (below) yesterday is most bullish
Overlapping and higher (lower) is bullish
Wider or relatively wide is bullish.
D. Initial Balance. Smaller is bullish.
Close above is bullish for up trends.
Close below is bullish for down trends.
E. Close in direction of trend is bullish
2. Set basic strategy for entry and stop (from TCP)
3. Follow basic strategy for entry and stop (house trades)
4. Analyze trading half-hour by half-hour through the day
A. Attempted direction: market follow-through is bullish
throughout the day
B. Volume during the day is inferred from width of value area
C. Tails show price rejection, bottom tail is buying, top, selling
D. Value Area. Directional with the move is bullish.
Above (below) yesterday is most bullish
Overlapping and higher (lower) is bullish
Wider or relatively wide is bullish.
E. Initial Balance. Smaller is bullish.
Close above is bullish for up trends.
Close below is bullish for down trends.
F. Close in direction of trend is bullish
5. Crossover between TCP swing information and Meta-Profile day data
A. Overlay Demand Curve + Superposed Meta-Profile
Displays initial demand balance figure for past 10 days
Adds current Meta-Profile for composite demand curve
B. Overlay Demand Curve with latest day open, close & value area
Last full day composite behavior
C. Five days of Meta-Profile on single display
Relative market behavior, most recent five days
6. Examine current and collective periods for tails, congestion
attempted direction, value area, relative size of initial balance
7. Alter exit stop/condition from new intra-day data on a 'what if'
scenario.
8. Compare altered scenario with the TCP basic strategy
For entry and exit we will follow and catalog the basic model, based on
concepts of Value Based Power Trading (VBPT). VBPT is easily adaptable
to swing trading and hence provides a foundation for the game for both
the swing and day trader.
The swing trader can follow the analyses for entry and exit and pay
little attention to the action in-between. It, of course, is true that
every swing trade is a potential day trade on entry because if one is
immediately wrong the stop is hit and one exits quickly. Likewise, even on
a long trend there is ultimately an exit, whether by stop or by decision.
The within-day analyses offer additional information on whether or not to
take a trade and for exits by decision.
The purely day trader benefits from the house strategy because it provides action
points at fixed prices. These action points can be evaluated from the
standpoint of whether or not they are validated by the shorter term market
analyses. The short term market information can be used to override or
augment the VBPT trading envelope. And, of course, VBPT provides the market
condition, a framework for all trades.
A third possibility is to take the data for the trading periods and apply
one's own trading strategy. This model can then be compared and evaluated
against both the house basic strategy and the within-day Meta-Profile data.
Data is of two types:
Multi-day data provides Market Condition and other 'Macro' reference points.
Source of the multi-day data is the Trader Control Package. These data
set the basic outlines of one's strategy--market condition governs the
way one trades each situation.
Intra-day data, from the Day Trader Package, follows the market half-hour
period by half-hour period. These data give the details of how the market
is responding to demand; and where necessary, indicate the changes in
needed to the basic strategy.
Multi-Day Data: Overall Trading Strategy
1. Market Condition. Comes from the Trader Control Package
The Overlay Demand Curve is a linear accumulation of Meta-Profiles,
summing over all market structures in the interval. One reads the
Market Condition from the Overlay Demand Curve (See the text, Value
Based Power Trading). Other reference points from the VBPT Market
Review are:
Volume, volatility, value area, trading range and Initial Balance.
Market Condition is one of four types:
A. Balance or Bracketing. Has an Upper Limit, Lower Limit
and an Octant (1/8 of the price range between limits).
This is a price congestion situation. Price tends to rotate
throughout the range, creating a bell shaped curve of price
over time. Most of the balances used in the game come from
the 10 day Overlay. When we use 'balance' we imply that both
5 day and 10 day balances exist. On occasion, the five day can
breakout while the 10 day does not. A trend can start this way,
a 5 day breakout one day and the 10 day breakout the next. We
will note these cases in the game.
B. Testing the Balance. Price teases the limit, breaking
out and returning to the bracket. Or breaking out and only
moving a short distance and then creating a new (higher or
lower) bracket. Decreased congestion is a result of testing.
C. Trending. Value increasing or decreasing over time. Congestion
is low, except at pauses in the trend (the last pause is often
the start of a new balance).
D. Testing the Trend. The end of a trend can be abrupt or can
come through a stop and go process. Attended with increasing
congestion.
2. Breakout trades: Start from a balanced market. A breakout occurs
when price exceeds the upper or lower Limit of the balance. Trends
start this way.
3. Responsive trades within the balance are made from breakthroughs
of prices between the Octant (1/8 of the range of the balance) and
the near Limit; moving toward the center. Normally, price first moves
away from the center of the distribution, crosses the Octant and
continues toward the limit. The Responsive trade is then taken as
price recrosses the Octant moving toward the middle.
1. Initial Balance (IB) sets the tone of the day in balanced markets
A wide balance comes from the floor members being in control and
argues against a trend occurring. An up trending market that closes
above the IB shows public control and the same is true of down trends.
2. Development of Tails (single TPO prints) at the top (selling) or
bottom (buying) identify price rejection and speed recognition of
'false breakouts'.
3. Build-up of congestion regions locate areas of trade stagnation.
This can be a 'pause' in a trend, a normal feature of trends; or
it can signal the end of a move (e.g. short covering temporarily
ends in congestion, Intra-Day Congestion Analysis in the Day Trader
Package monitors all markets, constantly).
4. Attempted Direction is based on the completed day (yesterday) and
then the first three periods of the current day, and after that a
re-evaluation period by period. The aim is compare what the market
is trying to do with how well it is accomplishing the task.
5. Value Areas identify the day-value. A market that moves away from
the previous day's value is signaling a change in value.
A widening value area shows increased trader interest and conviction.
6. Volume is an indicator of interest. As interest wanes, volume drops
below the long term average. Often, an imminent market move is
signaled by increased volume before there is a change in price.
In trends, high volume is needed to sustain the trend. The ideal
breakout comes from lower than average volume. Then as the trend
builds, volume increases and/or stays high. End of trend is often
preceded by falling volume.