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



Background: The CISCO Day Trading Engine (tm)

July 27, 2009

CISCO Futures©

INTRODUCTION

Day traders have the universal need to locate markets that can be read and understood. Many, many tools and training are available: technical analysis, candlestick charts, Gann, Fibonacci, pivot points, point-figure, 1 minute bars, etc. All are similar in that they apply some outside formulation/reasoning rarely supported by the market. Another similarity: it is rare to find anyone successfully using these tools.

What markets actually do is to run and pause (distribute and congest) a number of times within a day. The evidence is there for all to see: just follow the Meta-Profile (CMaPS) through a day, checking the green (CISCO Pause Alert) areas from period to period. A typical day will have several Pause Alerts. Each pause is a balance point, a market decision point where the bulls and bears are at a standoff. A Pause Alert is thus a potential trading point. Observation shows that within a short time either the bull or bear wins the tugging match and the Pause Alert balance transitions into a run (a breakout from the pause). A Pause gives the daytrader a well defined timing point. Timing is one of the two basic variables needed for the primary trading decision. The second is an estimate of the potential market direction upon breakout from the pause. Basically, DayTradingEngine's job is to locate the pause (timing) and to predict the coming day's market flow (direction).

CISCO DayTradingEngine (DTE) gets its timing from the market itself; by identifying intra-day market pauses. The projected market direction is found from analysis of the market's reference points on the assumption of continuity (a market moving/flowing in one direction will continue in that direction until outside forces change it).
DTE FLOW EXAMPLE2

Since DTE gets it's timing from market dynamics, and since DTE examines short time frames; there is a conflct with low volume markets. The user must avoid low volume markets (check the Tick Status Table (main page, across from the flag)). DTE is not supported outside of normal trading hours (08:00 - 15:15).


Location of the CISCO DayTradingEngine Data
On the CISCO main page, under the flag, the Data menu lists:

DTE: CISCO Day Trading Engine
This Sub-menu contains:

1. DTE Single: Flow Prediction and other information for trading analysis.
Background for 1. is the link that you are currently on.

2. The Triple A page of three concurrent deliveries and its Background Report:
Day Trading Engine Triple Background

3. DTE History Study A Market Flow research tool and its Background Report:
Day Trading Engine History Background


Day Trader Types
Futures day traders form two major groups: 1) those who concentrate on a single delivery such as the eMini SP (with maybe a little of Dow and Nasdaq thrown in) and 2) those with a broader scope.

The division between 1) and 2) hinges mostly on market condition (run or pause). Group 2 is more interested in markets in balance where they have an edge. Group 1 will trade regardless of market condition. For group 1, CISCO DayTradingEngine timing/directional data is probably all they need from CISCO. Each Pause Alert gives timing and the morning Flow prediction guides their directionality.

The second group is more likely to use CISCO's Intra-Day and End-of-Day services to identify trading opportunities on a wider variety of markets (metals, petroleum, foreign exchange, etc.). This group is seeking out the best candidates for trading that day. In addition to DayTradingEngine for explicit timing information, Group 2 will use CISCO tools such as daily balance lists, the Tick Status Table, Visual Graphic for the many reference points and CMaPS for intra-day profile and Pause Alert behavior, etc.

The CISCO DayTradingEngine follows methodology in the Flow Example2 link above to compute the market's general flow direction prior the the beginning of a day's trading. If that market is in balance, the balance flow (rotation) takes precedence. Both directions appear in the Flow Data report.

Secondary considerations, i.e. trade management, are unique to each trader. Risk accepted, trade size, entry and exit strategies are included with timing and flow information to make a preliminary trade set-up.

During the day, when DTE identifies a Pause Alert, the trader can complete the trade set-up. At the time of the Alert, the trader can immediately 1) decide to trade or not, 2) if the decision is to trade, the trader determines an entry (breakout) point and risk (and transmits the conditional order to the broker).

Once the market hits the target price and entry is achieved, the trader manages the trade to completion (say, with a trailing stop, or a multi-trade strategy or whatever is desired). At exit of this trade, it is back to DayTradingEngine for the next opportunity. Chances are, another Pause Alert will soon appear.

The run-pause feature of auction markets is 'fractalish' on the basis of timeframe. A timeframe of 30 minutes (standard Meta-Profile) Pause Alert takes 90 minutes to develop and finds three or four alerts within a day.

DTE offers timeframes of 30, 15, 10, 5, 4, 3, 2, 1 minutes (and even into seconds). Generally, the shorter the timeframe the more Pause Alerts will be found within a day. Day traders prefer different activity levels; some look for a trade or two per day, some want many. DTE offers enough activity levels to satisfy most all trader classes.


To recap: CISCO DayTradingEngine identifies the two basic variables, time and direction and does so over and over throughout the day. The decision to trade or not, and the risk/trade management parameters are determined by the trader. For most day traders, timing is the paramount unknown. DayTradingEngine solves that problem.

The timeframes covered by CISCO DayTradingEngine (down to 5 second bars) can be so short that noise dominates the analysis. Thus, there is a limit, a minimum time bar, determined by market activity (adequate data is required for proper analysis). A heavily traded future such as the eMini SP can support shorter timeframes than less heavily traded instruments.

To repeat: Tick density is a factor in all trading. Too few ticks raise the danger of noise dominating. A longer time frame is needed for analysis at lower trading densities. Since the trader can choose the delivery and time frame used, and may get into a low density area, DayTradingEngine employs a proprietary algorithm for a minimum activity test. If there is inadequate activity to support analysis, DTE halts and a message appears to that effect.

Day Trading Engine (DTE) methodology releases the day trader from the tedium of screen watching. Once the trader has chosen a Pause-Alert timeframe, DTE sets an internal refresh rate of 20 seconds. The screen is automatically updated at this rate (plus a few seconds delay, depending on system load). Each automatic update is accompanied by a quick switch in screen background color, a 'flash' so to speak. The appearance of the yellow 'Anticipation' or green 'Pause-Alert' signals the trader that a potential trade is in the offing.

Note that the trader does not/should not trade off the screen. The recommended procedure is to find a Pause Alert and calculate an entry price and risk from the preliminary set-up for the day found earlier. Then place a conditional order with the broker. Market movement then causes the entry (when the market moves). Once in the position, the trader goes into the 'trade management' mode. Discipline is the key. A path has been pre-mapped, the management track. If a trade fails the loss is sustainable, just a cost of doing business. The winning trades take care of themselves.

To access the CISCO DayTrading Engine: (Passworded, free trial available)
..CISCO Main Page (www.cisco-futures.com)
....Pointer on Data
......Click on DTE: Flow Prediction


CISCO DayTradingEngine is a wholly self contained application.

Rules for the Single:
User: Clicks on Login, inputs Username and Password
User: Chooses the timeframe (30, 15, 10, 5, 4, 3, 2, 1 minutes)
User: Selects the Delivery, Time, Clicks Start
User: Press F5 to switch futures
System: Login requires a Username and Password
System: No limitations on futures (anything on Tick Status Table on main page)
System: Max of 2 screens permitted at any one time (charge for additional screens)
System: Time of Operation: 2 AM to 3:15 PM (Chicago time)
System: DTE will not analyze very low volume deliveries
System: Consists of 3 Panels (Left, Center, Right) with adjustable dividers
System: Left Panel: Three Day Value-Analytics Overlay
System: Left Panel: Flow Data for Market Direction
System: Left Panel: Additional Instructions
System: Center Panel: CMaPS Profile (updateable)
System: Right Panel: DTE Display: 5 Timeframes, M for Last Tick in each timefame
System: Right Panel: Green for a market Pause, Yellow for Anticipation of a Pause
System: Right Panel: Automatic Refresh every 20 seconds
System: Right Panel: A Red Background flash accompanies each automatic refresh
System: Idle time is Limited to 20 minutes, at which time a warning appears
User: If the mouse is not moved within 2 minutes, the account is logged off

To Repeat: Recommended use of the CISCO DayTradingEngine Application
One's trading set-up should be completed at the time a Pause Alert appears.
That information (entry price and stop) should be transmitted to the broker.
Nothing further is done until entry occurs, then trade management (T-M) begins.
T-M varies by trader, but in all cases, DTE should continue to be monitored.
The Two Faces of an Auction Market
An understanding of two market timeframes is important to the day trader. The first is the market prior to the start of a new day. This 'history' period, for most cases, is the latest 3 to 5 days days of market activity. Analysis of this history gives a summation of how this market is performing, or flowing. 'Flow' is measured two ways: price directionality (price moving higher or lower) and activity direction (increasing or decreasing market activity). Knowledge of the recent market behavior sets the stage for the coming day of trading (see DTE Flow Example2 above).

The second timeframe is the current, intra-day activity as it develops. This movement is interpreted within the context of the market's prior flow. The Flow Table generated by Day Trading Engine covers the last three days (each using the appropriate five day Visual Graphic). The trader has a view of the recent march of the market: how the reference points are evolving. Normally, markets display a certain amount of continuity, making a flow measure useful in understanding market movement and helpful in trading decisions.
Markets do NOT Turn on a Dime

Inside a day there can be minute to minute change as the market actively seeks value. This is the region for which Day Trading Engine (DTE) is designed. DTE searches out the pauses, those periods in which the collective market is uncertain.

CISCO Day Trading Engine (DTE) is an application of the ongoing CISCO run-pause research. Earlier, the Pause-Alert for 90 minute balances and the Anticipation Alert were added to the intra-day profile (CMaPS). A typical market will experience several 90 minute based Alerts per day.
Pause Alert: Background

Day Trading Engine broadens the (CMaPS) standard Pause-Alert technology (90 minutes) to timeframes of seconds to 30 minutes. Each time reduction results in more trading opportunities over a day. A rule of thumb is that shorter timeframes offer smaller potentials and smaller risks. Hence, DTE is of great interest to those traders who want to find a number of trading opportunities during the day.

A sophisticated trader will enter the day knowing market condition (from Visual Graphic), knowing what the market has done prior to this point today (from the Meta-Profile (CMaPS)) and knowing the market's predicted flow direction (from DTE Single). A trader may use DTE Single to trade one delivery or Triple to use more advanced strategies for trading several deliveries. At any time, a look at the standard, 90 minute Pause-Alert can give a market overview and help in trade management.

Applying Day Trading Engine (DTE) Procedures
(For Those Subscribed to the CISCO Advice Engine Package)

While it is possible to use just the DayTradingEngine for day trading, an active trader might wish to go deeper into the data and the analysis process.

The Visual Graphic (VG)
Visual Graphics Data (for Flow and 5 Day Balances) becomes available around 21:00 CST and the same is true for the Advice Engine. For the trader who is active in several markets, Advice Engine is the first stop. For either, Visual Graphics is the next stop.

First, get the VG data for the future(s) of interest. Note the limits for 5 day balances, if they exist. A balance adds another dimension to market analysis.

The standard CISCO Visual Graphic display shows the recent market track and reference points for the last two days. Three general types of data are shown: market direction (up or down), market intensity (increasing or decreasing) and a directional prediction based on the other two. If a market is in balance (5, 10 or 20 days), that is shown. This information set provides market condition (balance or not), the general flow direction and whether market activity is increasing, decreasing or non-committal. Observation of the 5, 10, 20 Day Overlays and Rotation Profile offers a general view of a market's behavior: where it has been and how it got to this point. This includes both objective information (balance limits and the directionality of the individual reference points) and subjective data (sum of directional markers, attempted direction, etc.).
Explanation of Visual Graphic

An important element of Visual Graphic is the gathering of the market's reference points in one place. The market itself is dynamic, complex and driven by feedback. Synergism (the whole is greater than the sum of the parts) is at work, so more information can be gained from examining the reference points as a group than by looking at each individually. As an example, how the volatility is moving over a set time period (say three days) is less germane than if other reference points are included (what is point of control doing, is the total TPO count higher or lower, is trade facilitation increasing or decreasing, etc). Sixteen reference points are used to estimate the current market flow.

In addition to the major reference points, a Visual Graphic display posts the balances for 5, 10 and 20 days, where they exist. Balance periods, or market congestion, offers the trader significant information: upper and lower price limits, a center of value between the limits, range of the congesting region and an estimate of risk based on the balance variables.


Back to the DayTradingEngine (Single)

The DTE display is comprised of three resizable Panels. (P1) Left Panel has 3 parts: a 3 Day Overlay,
Predicted Direction and Instructions; (P2) a Refreshable Meta-Profile (CMaPS); and (P3) Pause Alert (green) with Anticipation (yellow).

First Click on Login and enter Password and Username.
Above Right Panel, select the ticker symbol, delivery year/month and time, then click on Start.
If there is inadquate data for the DTE calculation (too few ticks for the time chosen), a 'not allowed' message will appear. Go back and increase the time. Then restart.

Flow Data is in Left Panel.
In Left Panel, click on Flow Data to get the 3 day Flow Table. The last three days of Visual graphic reference points will appear in a table.
An example of a Flow Table is in Figure 1F, below.

Scan the Flow Table: Post direction of Price and Activity in your notes. If a balance is reported, accept the limits as break-out prices and consider the direction neutral (until breakout).
For an example, see:
DTE FLOW EXAMPLE1

Post the information (high TPO price, limits, etc.) that you will use.
If more instructions are needed, Click on the Instruc links in Left Panel.
Click on 3DayOvly for Overlay of last 3 days.
Check for balance and limits, form, shape. Again, post/save what you need.
You now have the information for your set-up for the selected delivery.
If you wish to do another delivery, press the F5 key and log in for the new future.

In the screen-shot below we have logged in and selected UUH (eminiSP, Mar), with 10 minute bars.

Screen Shot 1: Full Screen

Note: The items below are for illustration only and cover a different delivery than Shot 1, above.

Left Panel: a. Background/Preparation
..Item 1: 3 Day Overlay from Value Analytics
Offers a quick scan of center of value; estimate of range.

..Item 2: Flow Data from Visual Graphic
Prediction of Flow Direction for Tomorrow. With details.

..Item 3: Instruc File
Additional Instructions/information.

b. Center Panel. Current Day Meta-Profile
CMaPS Meta-Profile (30 minute bars), Refresh as desired.
Very useful for market orientation.

c. Right Panel. Pause/Alert Anticipation
Time per bar in hours, minutes and seconds.
The last 5 (10 min) bars.
'M' indicates the latest tick for each bar.
Green indicates a Pause Alert.
..In the former period, last price was 7622.
..The latest period saw price breakout (7625) and go as high as 7633
..Then price fell to 7622. This was a few tick (long) opportunity

Yellow is an Anticipation Alert (can grow into a Pause Alert).
Upper right corner: Time remaining until next update.
Update signal: Background red flash to start next 20 second period.
Auto logout: 20 minutes with no mouse movement. Warning at 18 minutes.
Inadequate Data: DTE trade analysis depends on having enough data to support the analysis. DTE has internal limits. If the data density is too low, DTE will balk, providing a message that there is inadequate data to complete the analysis. Adequate data minimums are in the range of an average of 3 ticks per minute.

Screen Shot 2: Background/Preparation
(1) 3 Day Overlay: Shown in part on Screen Shot 1.
..Useful for short term market action, balances, etc.
..Flow Data
..Delivery, date and close.
(2) Directional/Activity counts, Predicted Direction
..5 Day Balance posted if it exists.
..Last 3 days of market directionality.

(3) Intruc Additional Instructions

Screen Shot 3: Background/Preparation





Missing Data from Left Panel Flow Data Screen shots are limited to what is on the screen. The Flow Data uses 16 reference points for tomorrow's Predicted Direction. Only eleven are shown. the full list is:
 Market Flow from Visual Graphic: CL 01 10
  A SUBJECTIVE view of Market Activity

           11 23 09    11 20 09    11 19 09
Directional    H  L        H  L        H  L
 Open          x              x           x
 High          x              x           x
 Low           x              x           x
 Close            x           x           x
 PT of CTL     x              x           x
 TPO ABV          x           x           x
 TPO BLO       x              x        x   
 IB UPR        x              x           x
 IB LWR        x              x           x
 IB POC UPR    x           x           x   
 IB POC LWR       x           x        x   
 EOD CLOSE       7748        7770        7843

Activity       G  S        G  S        G  S
 TPO TOTAL     x              x        x   
 Volatility    x              x        x   
 IB Range      x              x        x   
 TDE FACIL     x              x        x   
 V-A Range     x              x        x   

 Directionally Predictive
 Att Dir       U                       D
 VA Dir        H           L           L

Legend: (Data from Visual Graphic)
 Group 1. Directional: H=Price Higher, L=Price Lower.
           From prev day except IB - POC (same day).
 Group 2. Activity: G=Greater: S=Smaller.
           From prev day.
 Group 3. Predictive: Att Dir, U=Up, D=Down.
                      VA Dir: H, A=Up, Z, L=Down.

 For more info: www.cisco-futures/vgexplain.htmlx
 
Center Panel. Click on CMaPS for the current day Meta-Profile. This is an abbreviated form of CMaPS. Note the location of maximum TPOs and any other reference points you need.

Right Panel. Contains the current Pause-Alert. This is your trading data.
..Pause-Alerts are marked in green.
..Anticiption for a potential Pause-Alert is marked in yellow.
..The display will update automatically.
..To change the delivery, go back to the top of Right Panel.

Reading, deciphering the DTE Display
1) Left Panel. Flow Data Table. Follow the instructions in the Visual Graphics paragraph above to scan the table for activity and direction. Remember: it is the price direction and activity direction that you want to discern. As noted above: for an example, go to the link below.
DTE FLOW EXAMPLE1

You want to gain a good feel for the flow of this market.
This is done once only per day per delivery (for each market you trade).
With practice, you can scan the three days in a few seconds. This is the directional/activity information that is applied to trading decisions.
2) Left Panel. Three Day Overlay. Note the heavy trading regions and anything else of interest. This also is done once per day for a delivery. Note where the primary activity is because you will need to know it in setting up your potential trades.
3) Left Panel. Use the Instructions as needed.

4) Center Panel. Meta-Profile. Locate the current day activity in Right Panel on the profile.
Note the price location of today's activity relative to profile high and low and the activity on the 3 Day Overlay.
If there is a 5 day balance, note current price relative to the limits. Is price close to a limit? If so, be alert to a breakout. That could be another confirmation of a day trade.

5) Right Panel. The Pause-Alert appears in green, Anticipation (a Pause-Alert that is setting up) is shown in yellow. To read about Anticipation:
Pause Alert: Background

6) Right Panel is regularly refreshed by DTE. The background flashes on each update, coincident with update to the Pause-Alert. So updates are easy to spot without fixating on the screen.

What is the Market Doing Overall?
First, what is the market condition? Is it balancing (pausing) or is it running? Visual Graphics will tell.
Then, what is the flow during last few days? the 5 day balance limits, if a balance exists and other information from the Visual Graphic that might shed light on the market's behavior (such as the shape of the 5 Day Overlay, which days traded where and the time spread of the last five days). Much of this is subjective information that still leaves you with a clear answer: the flow is up or the flow is down or there is no directionality.

Market flow is usually fairly consistent. A change in market direction is often gradual, hours or days; with reference points showing the way. If there is a recognizable flow direction, the odds are that it will continue.
Markets do NOT Turn on a Dime

Review: Day Trading Engine Flow Table: Pre-market Analysis
In the evening (after about 9 PM CST) the Flow Table is built, covering the last three trading days (Figure 1F, Table 1: July 16, 15, 14).

The first group, Directional, has eleven entries of price directivity, H for higher and L for lower. A quick scan shows ten of the eleven in the H, or higher column. This market has been moving/flowing up the last three days.

The next group, Activity, has five entries measuring greater activity, G or smaller, less, activity, S. Three days back all five were S. By the latest day two of the five were G's. This market is becoming more active.

The third group with two entries is Predictive. The latest day is U for Attempted Direction and A (moderately up) for the Value Area Direction.

One's scan of the last three completed days should take no more than a minute. In this case price is moving higher, the market is becoming more active and the Visual Graphic directional projection is up.

Starting the Trading Day: The Day Trading Engine Flow has been shown to be up.
If the market is in balance, as found from Visual Graphic 5 Day Overlay, other information comes from that: The upper and lower balance limit prices, the price at maximum activity, the price range from the upper to lower limit and from that an estimate of risk (for the longer timeframe).

If the historical market is not balancing there is much less information available from Visual Graphic. There is none of the objective data from a balanced market; there is still the subjective market flow material from market activity.
The trader now has a good background of information for interpreting the trading day. Visual Graphic is a rich source of reference points,balance or not.
A more complete discussion of a Visual Graphic display is at:
Explanation of Visual Graphic

What is the Market Going to Do in the Current Day?
A working premise is that the market will continue on the track of what it was doing coming into the day. The odds are with this guess, since the average balance is 4 days long and the average run is 9 days (in the Emini SP graphic in the Market-unit study).
The Market Unit

Of course, there are plenty of run-pause cycles that went to make up the average and the dispersion is large (longest run is 87 days, longest pause is 9 days, shortest pause is 2 days (by definition), shortest run is 1 day.). So the continuation premise is merely a starting point, but the odds are with it.

Multiple Displays with Different Timeframes
DayTradingEngine pricing starts with two simultaneous deliveries. Two different futures can be accessed at one time--two copies of the browser can be active at one time. Or the same future can be displayed with different timeframes (say 30 minutes and 10 minutes) where trading activity may be taken basis 10 minute activity while the 30 minute display provides an analysis envelope. Then one can switch between to two browsers to keep track of the two. Today the futures chosen might be UU and EC, tomorrow it might be CL and JY (the limitation is on two simultaneous deliveries being worked at one time).

Both browsers can be displayed on one page. To do this, both browsers must be in the 'Restore' mode (a rectangle at the top of the page, not two overlapping rectangles). One browser will be on one time, the other one is running on the other time. These two browsers are superposed.

The Steps:
Activate two browsers. On one put a DayTradingEngine display, for example, eMini SP on a 30 minute timeframe. On the second, for the same future, use your preferred 'trading' timeframe, say 5 minutes. Be sure both browser copies are on the 'restore' setting. Using the browser bar, drag the lower display (the 30 minute one) to the left and then do the same for the upper display. Now you have both displays updating simultaneously and it is easy to see how the short timeframe is moving relative to the longer.

It is possible to put three displays on a 15 inch screen. A wider screen can take five displays or more. Cost is minimal. A subscription to DayTradingEngine includes any two futures or timeframes used simultaneously. Additional futures carry a modest surcharge.

To Review:
Pre-trading: Use Advice Engine and Visual Graphic for Balances, flow, etc.
Current day: The Day Trading Engine has three sections (Panels):
Above the panels, first log in and select delivery and bar timeframe; click Start.

Left Panel.
..Flow Data Table. Used for measuring direction and activity.
..A three day Overlay Demand Curve for relative placement of today's market action.
..Brief instructions

Center Panel.
..Abbreviated, non-updating Meta-Profile. Overview of current activity.

Right Panel. ..Pause-Alert: PA in green, Anticiption in yellow.

..Red flash on rollover to next period (every 20 seconds).


Figure 1F: Day Trading Engine Flow:  

 Table 1: July 16, 15, 14

 Market Flow from Visual Graphic: UU 09 09

           07 16 09   07 15 09   07 14 09

Directional    H  L        H  L        H  L
 Open          x           x           x   
 High          x           x           x   
 Low           x           x           x   
 Close         x           x           x   
 PT of CTL     x           x           x   
 v-A UPR          x        x              x
 v-A LWR       x              x        x   
 IB UPR        x           x           x   
 IB LWR        x           x           x   
 IB UPR POC    x              x        x   
 IB LWR POC       x           x           x
 EOD CLOSE      93575       92725       90150

Activity       G  S        G  S        G  S
 TPO TOTAL     x              x           x
 Volatility    x              x           x
 IB Range         x           x           x
 TDE FACIL        x        x              x
 v-A Range        x        x              x

 Directionally Predictive
 Att Dir       U           U            
 VA  Dir       A           H           A

Goal of Market Flow Table:
 To gain a subjective view of the recent market.
 1. Reference points for market directionality.
 2. Information on gain or loss of market activity.
 3. Near term (1 day) market tendencies.

Legend: (Data from Visual Graphic)
 Group 1. Directional: Price higher, H: Price lower, L.
           From prev day except IB - POC (same day).
 Group 2. Activity: Greater, G: Smaller S.
           From prev day.
 Group 3. Predictive: Attempted direction, U = up, D = down.
                      Value Area: H, A = up: Z, L = down.

 For more information: Explanation of Visual Graphic:
  www.cisco-futures/vgexplain.htmlx



 Table 2: July 21, 20, 17

 Market Flow from Visual Graphic: UU 09 09

           07 21 09   07 20 09   07 17 09

Directional    H  L        H  L        H  L
 Open          x           x           x   
 High          x           x              x
 Low           x           x           x   
 Close         x           x           x   
 PT of CTL     x           x           x   
 v-A UPR       x           x              x
 v-A LWR       x              x        x   
 IB UPR        x           x           x   
 IB LWR        x           x           x   
 IB UPR POC    x           x           x   
 IB LWR POC       x           x           x
 EOD CLOSE      95350       94900       93700

Activity       G  S        G  S        G  S
 TPO TOTAL     x           x              x
 Volatility    x           x              x
 IB Range         x           x           x
 TDE FACIL     x           x              x
 v-A Range     x           x              x

 Directionally Predictive
 Att Dir       D                       U
 VA  Dir       A           H            


 Table 3: July 24, 23, 22

 Market Flow from Visual Graphic: UU 09 09

           07 24 09    07 23 09    07 22 09
Directional    H  L        H  L        H  L
 Open          x           x              x
 High          x           x           x   
 Low           x           x           x   
 Close         x           x              x
 PT of CTL        x        x           x   
 v-A UPR       x              x        x   
 v-A LWR          x        x              x
 IB UPR        x           x           x   
 IB LWR        x           x              x
 IB POC UPR    x              x        x   
 IB POC LWR       x           x           x
 EOD CLOSE      97775       96900       94950

Activity       G  S        G  S        G  S
 TPO TOTAL        x        x           x   
 Volatility       x        x           x   
 IB Range      x           x           x   
 TDE FACIL        x        x              x
 v-A Range        x        x              x

 Directionally Predictive
 Att Dir       U           U           U
 VA Dir                    H           A

Epilogue


History of Pause Alert Development

At CISCO we learned of the Market Profile when it came out (1985), liked the concept and promptly found that we could not read the profile structure well enough to trade it effectively. Additional research showed that few profiles had the ideal bell shape upon which the profile concept was based and there was a day to day stability issue with profiles. In short, we could not reliably find value from a profile.

In search of stability we developed the Overlay Demand Curve using several days of profiles, leading to the identification of periods of market balance. Balances are located with the Visual Graphic trading tool which presents 5, 10 and 20 day Overlays as of end of day. Daily tables of markets in balance are contained in the Advice Engine Report.

Balance periods, or congestion, offers the trader significant information: upper and lower price limits (support and resistance), a center of value between the limits, range of the congesting region and risk.

Visual Graphic also also generates a number of 'reference points' where various market characteristics are collected. VG is probably CISCO's most popular tool.
CISCO Testimonials

A drawback of the market's run-pause nature is that the market spends more time in the run mode than in the pause mode. Markets on the move are notoriously hard to trade. A Run-Pause trader only has the Pause information a fraction of the time (~30% for emini SP). This can be seen in Figure 5 of the link below.
The Market Unit

One solution is to day trade more than one commodity. Most traders find this difficult or impossible because of time considerations. A superior solution is to find a way to effectively trade a commodity in both the Pause and Run phases. That solution, The Pause Alert, is the basis of Day Trader Engine.

The Day Time Period, Pause Alert
Price variation Within a day, and its somewhat chaotic appearance, is found to follow it's own short timeframe form of Run-Pause behavior. Pauses of an appropriate nature forms a 'Pause Alert', for the time the market is experiencing an intra-day pause of the order of 90 minutes. A variation, the Anticipation, can cut the required wait time to 60 minutes. This methodology is a part of CMaPS, the Meta-Profile.
Pause Alert: Background

The Run Pause Profile (tm)

Overlay Demand Curve Background

A major advantage of Pause Alerts is that that they occur daily in active markets. Every day there is something to trade, especially in well traded markets like Emini SP.

Day Trading Engine, very Short Pause Alerts
In this note, we are announcing a variable Pause Alert structured for about 10 seconds up to about 10 minutes. The time frame is set by the trader. A restriction is that whatever timeframe selected, there must be adequate trading density (ticks) to support the analysis.

The market does speak and does offer clues (reference points). Interpretation of the clues is difficult because markets are complex and yesterday's good clue, taken by itself, may be meaningless today.

Auction market theory is based on observed market action (see link below). According to theory, auction markets follow a Run-Pause rule driven by trader's search for value. When value is found the market congests within a range defined by: no one will pay more than the top price, nor take less than the bottom price. This is the Pause or balance phase where value is constant. When value changes there is often a mad scramble by traders to find the new value. This 'search for value' is the Run phase and it may continue indefinately (see the Market Unit link).
Auction Market Value Theory

CISCO developed the Overlay Demand Curve to identify market condition (Run or Pause).
The Run Pause Profile (tm)

The Market Unit

A congestion or balance develops over a several day time period, say five days more or less, depending on market factors. These 'structural' balances go from a single day period (a Profile) to many days (20 is the limit we develop in the Visual Graphic). A confirmed breakout from a structural balance marks a change of market condition (to 'run'). The run prevails until the market as a whole decides that the current price (range) is measuring value. And so a new congestion begins.

A look at the half-hour bars of a Meta-Profile display for one day shows a series of runs and pauses. This pattern is quite similar to that seen on the longer timeframe. But instead of one day, now the runs and pauses are developed on a 30 minute time base. A 30 minute time span in an active market will include a hundred or more ticks; plenty for a reliable sample.

This pattern similarity led us to the Pause-Alert concept for day trading. The intra-day volatility from market participants trading on news and rapidly changing their minds offers a day trader numerous trading opportunities per day.
Pause-Alert: Background

The success of Pause-Alert led to the question of the viability of yet shorter timeframes. It becomes a question of required sample size. Are there enough ticks, enough votes, to provide an reliable measurement? In the CISCO Tick Status Table (CISCO main page) the top 5 futures daily count around 15,000 ticks (a tick is a price change), or about 15 per minute (1 every four seconds). For this class it is safe to sample, maybe as often as once every 20 to 30 seconds.

Day Trading Engine (DTE) applies the CISCO Pause-Alert methodology to very short timeframes, from a few seconds to minutes, within the trading day.

As a consequence of the sample problem, the DTE program has internal limits and will not display a future with inadequate number of ticks.
DTE guides the trader in answering the questions 'what is the market doing now' and 'what should I do about it now' throughout the trading day. The 'now' question is answered by the display of a (green) balance area. 'What to do about it' is implicit in the existence of the balance, it's extension and the flow situation from the Visual Graphic. At it's simplest:
1. The trader sees a green area start to build.
2. There is a breakout.
3. The trade is taken if the breakout is in the flow direction.
The trader's strategies determine whether the trade is made at breakout price or later and trading is done on stops/trailing stops depends on the trader.

More convoluted strategies can come from the trader's experience and risk attitude.

Time or lack of it for decision making is probably the day trader's biggest problem. Intra-day market action is often fast. The primary problem facing a day trader is keeping in touch with the longer time frame (days) and 'todays right now' time frame. By far, the hardest problem is the 'right now'. Markets move fast. Most of the moves are meaningless. A wrong read interpretation can be expensive. Watching a screen is tiring and dulls the senses.

Day Trading Engine solves the now problem by discovering price ranges that are in the pause mode. As prices seemingly randomly run up and down within the day, they often pause as they are changing direction. This pause is cataloged by DTE and presented on a display. A trader has thus located a market's decision in an otherwise seemingly random market movement.
The Run Pause Profile (tm)

The fact is that markets run (trend/distribute) and pause (congest/accumulate/balance). Figure 5 of the link below shows three years of emini SP runs and pauses. On average, a run is 4 days long, a run is 9 days. However, the variations are wide. The shortest pause is two days, the longest run is 91 days. A pause always follows a run, but the run can cover many days.
The Market Unit

An understanding of the market's run-pause nature is extremely important to a trader because a running market behaves quite differently from one in pause (balance). In a congesting, balancing market a number of (objective) facts are known: the congestion has an upper and lower limit and their price range. Risk is tied to the price range. There are other many other 'reference points' but it is clear that much can be known of a balance. Alternatively, a run has few, if any, objective 'reference points'.

Looking back, the SP market of the 1990's (emini after 1997) was an ideal situation for day traders. Long sweeping runs (up from 1990 to 1999) took much of the guessing out of day trading. These kinds of very well structured markets (for both day and swing trading) are rare. Markets of today are not nearly so friendly (see Figure 5 in the link below to view the more recent run-pause nature of the emini SP).
The Market Unit

Those nice runs are history, a once-in-a-lifetime opportunity. What does the daytrader do now? The answer is to simply continue to trade with the odds. No one can predict when an extraordinairy situation will occur. When one does come, the value trader will be ready.

A coincidence occurred as we were developing Day Trading Engine. Early in July (2009) we had the concept working, particularly the Flow Table. We began tracking data on July 9. Totally unexpectedly, Emini SP started moving on July 13 and continued until nearly the end of the delivery.

The the move can be seen on the links:
DTE FLOW EXAMPLE1

DTE FLOW EXAMPLE2

The link above presents the research on flow for the entire September delivery.


Reference Information on CISCO DayTrading Engine

Value Analytics Reference Points Lookup Tables
The Reference Points from the early works on Market Profile were not very well or consistently defined. Markets and Market Logic (Steidlmayer and Koy, 1986), CBOT Market Profile (~1986), Taking the Data Forward (Steildmayer and Buyer, 1986) and even CBOT Market Profile (~1991), were published without an index. The link below from Value Analytics, lists most of the reference points and locates them in the various texts.
Value Analytics Background

Pause Alert Background with Anticipation (30 Min, CMaPS)
An earlier version of the Pause Alert (3 timeframes at the same price, in green) and the Anticipation (2 timeframes at the same price, in yellow). Includes some external reference points such as the limits of a 5 day Overlay (if a balance exists).
Pause Alert Background

Background on DayTradingEngine and Pause Alert
The DayTradingEngine Background
DayTradingEngine Background


The Run Pause Profile (tm)
The Run Pause Profile (tm)

Example 1: Making the Net Flow Direction
The complex nature of auction markets and feedback interaction between reference points means that tracking a single reference point like point of control or TPO count can be quite misleading. The approach of DayTradingEngine (DTE) is to select sixteen reference points from the Visual Graphic to calculate the net market flow direction as of the close of the day.
DayTradingEngine Flow Example1

Example 2: A Short History of Net Flow Direction
The market's net flow direction is calculated for the contract UU Sep 2009. The validation of a predicted flow is made by comparing the closing price with the next day's high or low. For a predicted flow up, a hit, or validation occurs if the high of the new day exceeds the previous close. A predicted downward flow is validated if the new day's low is less than the previous close. On this basis the 51 predictions for the contract showed an 81% hit rate.
DayTradingEngine Flow Example2

Short Timeframe Directionality
Tick by tick data has a high random component. Longer timeframes (a minute, ten minutes, etc.) suppress some tick-by-tick randomness. An alternate method of tracking is to post the new price highs and lows. This gives a more trader-oriented view of the market's progress through time. As the new highs and lows develop they graphically show the run-pause nature of the market.
DayTradingEngine Directional Study

Pause Alert Example 1, a Working Paper (WP0)
Discusses run versus pause.
Pause Alert Example1 (WP1)

Pause Alert Example 2, a Working Paper
Describes auction markets, minimum requirements for success, the Pause Alert as a temporary market uncertainty and very short time frame trading.
Pause Alert Example2 (WP2)

Pause Alert Anticipation (WP3)
While the Pause Alert is defined as 3 timeframes at the same price, there are cases where the Anticipation (two timeframes at the same price) will certainly subsequently end as as a Pause Alert. A knowledgeable trader can use this information to get a (one timeframe) jump on the market.
Pause Alert Example3, Anticipation (WP3)

Pause Alert Anticipation: Speeding the Process (WP4)
Pause Alert Example3a,Anticipation (WP4)

Some Questions and Answers
Some DTE Questions and Answers

Market Continuity: Markets in motion tend to remain in motion.
Markets do NOT Turn on a Dime

The Pause Alert
Pause Alert: Background

Visual Graphic: A Source of Reference Points
Explanation of Visual Graphic

CISCO DayTradingEngine Flow, Introduction
DTE FLOW EXAMPLE1

CISCO DayTradingEngine Flow, Flow Study
DTE FLOW EXAMPLE2

Run-Pause: The Market Unit
The Market Unit

Customers Speak
CISCO Testimonials

The Run-Pause Profile
The Run Pause Profile (tm)

The Demand Curve Background: A Source for Value
Overlay Demand Curve Background

Auction Market Value Theory
Auction Market Value Theory