CISCO Futures
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



CISCO Futures - Auction Market Analysis - Home Study

Introduction

              Tell me and I forget. Teach me and I remember. Involve me and I learn.     Ben Franklin


(Note, for Short Course background or go to Short HomeStudy link on homepage.)

  1.   Introduction to Futures Trading
        1a   Most off-floor Traders Lose
        1b   Becoming a Winning Trader
        1c   The Home-Study Course
        1d   Benefits
        1e   Frequently Asked Questions
        1f   Glossary
 2.   Reference Points, by Quarter
 3.   Analysis, Based on First Quarter Reference Points.
 4.   Reference Points Quarters 2, 3 and 4
 5.   Managing a Trade - Procedure
       5a   Fixing a Strategy for the Day
       5b   Feedback from Trading
       5c   Low-Risk Trading
 6.   Market Generated Information, A Review
       6a   Market Profile
       6b   Liquidity Data Bank
       6c   Overlay Demand Curves
       6d  Trader Control Package
 7.   Examples
       7a   TRADE 1: Breakout trend trade (gray)
       7b   TRADE 2: Advance Information from Commercial Breakout (gold)
       7c   TRADE 3: Responsive Day Trade
 8.   Cost of Home Study
 9.   Services
10.  Getting Started
11.  Course Outline (green)



"There's no other business, positively nothing on earth that you can spend one year of training and make this amount of cash. There's nothing! Name one thing. There's nothing!" Robin Dayne, quoted by Joey Anuff in Dumb Money, Random House, 2000.

What is the upside of futures trading?
.. The lifestyle of the successful trader is hard to beat:
.... Making your livelihood at home (alone, no employees)
.... Low business costs (PC & modem, data)
.... Trade from anywhere (anywhere that has communications)
.... Set your own hours
.... Take time off as you please
.... The potential for making a great deal of money
...... Return tends to vary with risk
...... Capitalization requirements are defined by the risk accepted
...... It is possible to start with as little as $5,000 or even less.


What is the downside
.... Most (public) traders lose. Why?
...... Simply, most do not understand the business (and do not try to)
...... Most try to start with a trading model
...... Most expect their broker to help them trade
...... Most do not know the rules and mores of the industry
...... Too many overcommit to expenses, like data services.
.... Some people cannot take the discipline
.... Some people cannot take the stress
.... Exalted expectations (no, we do not become millionaires overnight)


Why is CISCO your best bet for learning trading?
Auction Market Analysis is possibly the only theoretically based approach to trading. There is a valid, verifiable reason for each trading decision. The Course is strongly oriented to teaching you how to recognize market condition. Market condition is simple to define (balance, transition to trend, trend and transition to balance), but not so easy to recognize. The Course takes the tack of a swing trader, one who will hold overnight. This is because market condition is typically a multi-day situation. For instance, a market that has been in balance seven days is most easily recognized by looking at the last ten days and noting where the change in distribution (to balance) began. In any event, the starting point of trade analysis and trading strategy for the swing or day trader must be based on the current market condition.

.... You will learn how to trade. You will learn the business.
...... You will learn:
........ How to get the big picture (from the Bracket Screen)
........ How to select the best players (from the Advice Engine)
........ How to handle those players (you are the coach)
........ How to minimize trading risk (through proper valuation)
........ How to spread risk by diversification (the Bracket Screen, again)
........ How to protect yourself, your rights, the rules
........ How to learn without risking your funds.
........ How to trade with low stress (by knowing what you are doing)
........ How to devise your own methodology based on 'reference points'
........ (Read 'Trading as a Career at "Whats New" on our homepage)
.... CISCO is not a brokerage. We do not make our living from commissions.
.... We are researchers, with plenty of experience trading our own ideas.
.... We emphasize trading on the basis of value and the power of diversification
.... We know that today's hot market may well be tomorrow's dog.
.... Our training works, we have trained successful traders.
.... Your success is our success (you become our long-term customer).
.... We have learned that purchased trading models do not lead to success.
.... (Read 'Trading Model Development' at "Whats New" on our homepage)
........ We believe you must know markets in general to trade specific ones.
....Our students have learned from us and many then developed their own models.


What does it take to become a successful trader?
.. First and foremost-as in all businesses-UNDERSTAND THE BUSINESS.
.. Understand the competition.
.. Develop an ability to recognize value in the futures market
.. Do an apprenticeship--gain experience without risking your capital.
.. Through your training and experience, develop your own trading methodology.
.. Be able to handle the stress of risking your money.


Auction Market Analysis versus Technical Analysis
How does Auction Market Analysis differ from Technical Analysis? The difference is simple but profound: Technical Analysis deals with price; Auction Market Analysis works with value. If you know value and it's history you can know in depth what the market is doing. If you know only price and it's history you can see where the market has been, but you know little about it's current condition. Value is in-depth knowledge, price is superficial.

Unlike other courses, we do not tell you how easy it is to become a professional futures trader. Learning a new profession is rarely easy. So much more so if that job offers superior returns and advantages. Our experience with our course shows that most traders can learn to be a success. It does take hard work and discipline.

This course offers the tools and insight and market understanding. We provide the guidance. We give you the tools. We provide data that permits you to be a coach (selecting the most promising markets to trade). The apprenticeship element of the course allows you to develop yourself and to test yourself as a trader without the risk of losing money--you try before you buy.

It is up to you to make yourself into a successful trader. How good you become really does depend on you.


Can the public trader be competitive in futures? Emphatically, yes!

First the potential trader must face certain facts:

  1.  There is no free lunch.  If you do well, it is probably earned.
  2.  Futures trading is a business.
  3.  The public trader (you) competes with the other traders in the futures
         arena; some of whom are professionals.
  4.  Trading success depends on two major factors:
          A.  Understanding the futures business; who does what, when and why.
          B.  Mastery of the art of trading.
  5.  Knowledge of the exchange rules that apply to member-public interactions
        and your rights to arbitration can be critical.


Understanding the Futures Business

Futures trade in auction markets on the floor of an exchange (or on a computer).
    You must learn how auction markets work.
    You must learn how exchanges function, who the members are and what they do.
    You must learn about the data that comes from the floor and how to read it.


Futures trading is an art in the same way that surgery is an art.
    You must understand the trading data as it describes market situations. 
    You must know who in the market is doing what, and where it is occurring.
    You must know how to trade, what to expect and how to get it.


The CISCO Home-Study Course can make you competitive in futures!

Most new futures traders focus on their trading model as their route to success. Or they buy or rent costly equipment.

This puts the cart before the horse. You must know your business first.
Then make the necessary investments.


The Auction Market Analysis Home Study Course provides training on both the technical and business aspects of futures trading. Home-Study is the place to learn to be a professional trader. That is, Home-Study offers you the in-depth market knowledge and training practice that is crucial to your development.

Trading training is continuous throughout the course. Market understanding and cost control comes through the series of twelve monthly lessons. These lessons give you the background, how to handle your trading (income production) and how to avoid costly business mistakes.

Each area contributes to your prosperity. Background information and the daily trading practice are both necessary to become a professional trader. You will learn how the floor members operate and your role in this business of futures trading. You will find your niche.

Auction Market Analysis Home Study is an extended training course on futures trading: equally useful for the beginner and the seasoned trader; for both day and position trading. Monthly lessons teach the student to track the interaction of the traders on the floor with all others who use the exchange; to find who is buying and who is selling. Daily trading practice hones one's trading techniques and permits the analysis of various trading strategies. Cost analysis is a fallout, coming almost automatically from understanding the markets and one's needs for information. You will learn that, in most cases, you can limit your costs for trading information to under $100 per month.

The training approach is similar to an internship for new physicians, i.e., theoretical understanding is reinforced by lots of practice. Initially, you paper trade the CISCO basic trading rules; then you begin to devise your own strategies. Successful completion of the course means that you will have progressed from novice (in auction markets) to become a competitive trader, one who can make one's living from the markets. Professional traders are their own boss. They have a level of control of their lives unparalleled in other jobs.

1. Introduction

The decision to take a year long course requires substantial commitment. Magazines advertise weekend futures seminars that will make you rich. Why then pick a course that makes no promises and offers up to a year of instruction and trading practice? Well, there is a reason. We believe that the successful trader, like any other professional, must know what he is doing, where his opportunities lie. We know that there is no free lunch. It takes time and effort to learn this or any worthwhile business.

This Introduction and the associated Theory and Practice reports provide a thorough look into Auction Market Analysis. The examples show exactly how the basic strategies work. This is the starting point for becoming a professional trader. In truth, one could take this information and the text (Value Based Power Trading) and trade the Trader Control Package, probably successfully. The Course adds sophistication. Initially one really learns the basic six reference points that are covered in the text. There are many more reference points that can refine one's trading.

1a. Most Off-Floor Traders Lose: What is the Problem?

Off-floor, public traders rarely understand how the market functions. They focus on a "Model". They do not know that there are four types of members on the floor. They do not know how these members respond in different situations. Public day traders do not know when or if they are competing with exchange members. They are unable to differentiate between short timeframe and long timeframe traders. They do not know the difference between standard market data such as ticks and market generated data like the Market Profile, the Liquidity Data Bank, Overlay Demand Curves and the Trader Control Database. In short, most public traders do not have a clue.

Public traders often display low confidence. They look to others for tips and guidance in trading. They trade on news and they solicit their brokers for trading ideas. Lack of confidence causes them to display poor trading technique, taking small gains in fear (that gains will evaporate) and holding too long to losing positions in hope (letting small losses grow into large ones). They buy trading models! Most public traders focus on finding a model; not realizing that they must understand what is happening inside the market before they can trade profitably. As professionals in the futures business, most public traders would be graded F.

1b. Becoming a Winning Trader: New Auction Market Analysis

The basic, underlying theme of New Market Analysis is that if you understand your market and the roles of the participants, you will have the information upon which to base rational, low-risk trading decisions. Such a trader is a professional.

The 'public' trader can know what a market is doing by monitoring the 'market generated data', This is accomplished with the reference points found in the Trader Control Database. These data combine price, time (volume) and participation by the exchange members. How well you unwind this information from the data determines how much you will know about the market. That is, who is doing what, when and where they are doing it.

There are about two dozen reference points. Some apply to balanced markets, some only apply to trending markets and some apply to both. It is a primary function of this course to teach you how to 'read' and understand the market, i.e. the reference points. This prepares you for the second part, developing a consistent trading strategy.

This course will arm you with the facts, with the information needed to give you the edge in the trading world. You will learn the makeup of the futures markets and their structure. You will learn New Market Analysis and risk control; the reference points are your guide.

You will find that you can learn to analyze any market and know what to expect. You will learn that market activity usually begins to change long before a trend turns. Further, you will learn about trading, exchange and regulatory rules, leverage, cost control and many other things that seem to be peripheral, but actually can make the difference between profit and loss. You will get the tools!

1c. The Home Study Course.

The Home-Study Course teaches you how to trade. The professional trader masters both the technical aspects of trading and the purely business elements of cost control. And you are involved! Each day you do your practice trading and check the results of the previous day's trading.

Whereas the technical aspects of trading gets up to 100% of the attention of most public traders, you will have a more balanced view. By understanding the 'market generated data' and how to use these data for trading and strategy development, you will be able to keep trading and costs in perspective. You will have time to run your business as well as trading.

Cost management is as important as the technicals to your survival and profitability as a trader. You will focus on discipline and control of expenses (equipment, fees, etc.). You will learn how the members on the floor trade and how to stay out of their way. You will find out how to use the legal remedies available, if needed.

There are twelve monthly lessons to guide you in both the technical and purely business parts of trading. The lessons should average about 8 hours of study. On market days you will use the Trader Control database to practice what you have learned from the lessons (strategy development and risk evaluation). This 'paper trading' will take about 30 minutes per day

The lessons teach you the principles. The paper trading part of the course involves you in the real market every day. As your paper trading improves, you will come to the point where you really understand how the markets function. At that time, trading with actual money becomes a much less risky proposition.

1d. Why Take the Home-Study Course?

The Course is your internship, your apprenticeship. Of course you can just start trading and hopefully, survive long enough to learn the business. Most who choose this route fail. There are many advantages from studying and learning the right way. The Home-Study Course offers these benefits:

It teaches you futures trading as a business
It is entirely on the web: It is efficient, private, no salespeople call
You do have access to the course leader (voice, email)
It is unique: You learn both the how and why of each trade
You both learn trading principles and apply them daily
The methodology is currently being successfully traded
You have the opportunity to become a professional trader
You are immersed in the learning process, you are involved!

Beginners will learn
    How futures trading differs from stock trading
    The difference between long and short positions
    How to approach risk, how to develop a 'low risk' attitude
    Margin: What it is, how it is used and how it can make you money
    How and when to place orders, how to correct errors
    How to select brokers and what to expect from them
    You will experience trading and see if it is for you
    You will get the properly directed 'book learning'
    You will get plenty of practice and feedback
    You will learn to develop trading strategies

Seasoned traders will pick up trading nuggets
    How auction market data improves their market understanding
    Where and how members on the floor control markets
    Where and how the public control markets
    The effects of commercial traders

For all traders:
It teaches you how to trade, not just how to use someone else's model
You will learn asset management and the control of leverage
You will learn how to minimize your financial exposure
You will learn the mechanics of trading, placing orders, timing
You will learn that you rarely need a real-time ticker
You will learn exchange rules, regulatory agencies and how they aid you
You will learn how auction markets function
You will learn to read the behavior of your markets and the participants
You will learn about the four exchange member types and how they affect you
You will learn the four market phases and the safest one for entry
You will learn the market's two primary time frames and how to use them
You will learn trading strategy and trading practice
You will learn a basic breakout strategy and how and when to trade it
You will learn to modify the basic breakout strategy into one uniquely yours
You will learn a basic responsive strategy and how and when to trade it
You will learn to modify the basic responsive strategy into one uniquely yours
Research results on the basic model are on the CISCO homepage
You will learn to accept risk and to control it within your trading strategy
You will learn to eliminate fear, hope and greed from your trading
You will learn to trade on what the market tells you, not on hunches or tips
You will learn to recognize those times that a market should be avoided
You will learn to analyze each market in five minutes per day
You will develop and test your trading skills with no dollar risk

1e. "Frequently Asked Questions" (FAQ’s)

FAQ's are listed in nine separate sections on the CISCO home page. These cover many of the details that are very helpful to your thorough understanding of Auction Market Analysis. There is a wealth of information in these nine sections. Since success in trading depends quite often on your depth of understanding, you owe it to yourself to be familiar with this data.

These sections are:
  A    General
  B    Futures Data
  C    Market Profile, LDB, Overlay
  D    Overlay Demand Curves
  E    Reference Points
  F    Home Study Course
  G    Trader Control Package (TCP)
  H    Visual TCP Graphics
  I     Data Retrieval

1f. Glossary

You may encounter unfamiliar terms. A glossary is available. To get to the glossary, click on 'Value Based Power Trading', line 11 on the homepage. Then click on the glossary link.

Remember, your goal is learn the futures markets in depth, just as you must learn any business. Your financial success is riding on your knowledge. The information is here, in the Home Study course, using Auction Market Analysis. You must do the work to learn it; only you can put in the effort to master the course material. The stakes are high. You can become a professional trader.

Successful traders are their own boss, live where they choose and define their own work practices.

2. Reference Points: Tabulated by Quarter

New reference points are announced and/or emphasized throughout the course. A list, with the quarter of the course in which they are featured is just below. Note that often a reference point will appear in a quarter other than the one listed. Most reference points are useful for both day and position trading.

  Reference Point                           Course Quarter

Overlay Demand Curves (3 ref. points.)   1
Internal Trends
Commercials
Pauses in Trends (nodes)

Volume (three types) 2 Volatility Trade Facilitation Factor Quadrant of Close

Value Area (two types) 3 Point of Control Shape Factor Daily Trading Range (two types) Initial Balance Range (two types)

New Highs/Lows 4 Continuation Analyses # Days in Congestion (non-bracketing markets)

3. Using Reference Points for Trading:
1st Quarter's Reference Points

The starting point of Auction Market Analysis, taught in this course, is market condition. Any trader (day, swing, long term) must start a trade by first knowing market condition (bracket, test for breakout, trend and test for end of trend). It should be clear that the day trader would not want to short a market that was testing for a breakout on the upside. A trend (swing) trader would not be interested in taking a position in a balanced market. In fact, without knowing the market's condition the trader is starting out blind.

Bracketing markets begin the market cycle. These are single distribution, bell curve like, market situations. Price spends most time near the middle of the bracket, but price does rotate out to the bracket limits on occasion.

The first three primary reference points define the bracket itself
    Upper/Lower Limits: Prices outside the limit constitute 'breakouts'
    Upper/Lower Octants: 1/8 of the bracket price range inside the limit
        Middle: Center of value

The fourth reference point measures Internal Trends inside a bracket, an alert.
The fifth comes from the commercial trader's activity.

Trending markets display a run - pause characteristic, trading through a number of prices very quickly and then pausing in a price region to trade awhile. A sixth reference point used only in trending markets, catalogs the pauses (nodes). An exit is indicated when price retraces to a prior pause (node).

The first five reference points are used by both day and position (swing) traders.

Nodes, the sixth reference point, locate exits for the position (swing) traders.

Position Trading: Trend-Breakout from the Overlay upper or lower limits in a balanced market..

Swing traders will generally use a close trailing stop. Long term traders use looser stops.

Day Trading: Day traders will either have profit targets or exit on close.
    Breakout day trading is out no later than the close.
    Responsive day trading has a target or exits on close.

The first six reference points are the starting point for the beginning trader. They form a complete set, allowing the development of several trading strategies. These strategies form the basic platform from which the student then develops his/her user specific strategies. Information on the development of the primary six reference points is covered in detail in the Text, Value Based Power Trading.

4. Quarter 2, 3 and 4 Reference Points

Most reference points differ in their interpretation, depending on which of the four market conditions is in effect:
    (1) bracketing or balancing;
    (2) testing the balance for breakout;
    (3) a market that has broken out of balance and is now trending;
    (4) and that phase at the end of the trend.

Each market condition is recognizable from today's Overlay, interpreted within the context of the behavior of recent day’s Overlays.

A market will either stay in it's present condition (continue) or move on to the next phase (change). Market analysis can be thought of as continuation analysis. If the probability of continuation is high (say a trend is expected to continue), the trader rides along. If the reference points indicate a high potential for change, the trader must prepare a strategy to cope with it.

The first of the second quarter reference points to be studied is the total volume. The Liquidity Data Bank database has the latest day's volume, a fact used in the analysis of commercial trading action. As a reference point in it's own right, it is instructive to see the many ways that volume helps to understand markets under various market conditions.

There are three useful volumes reported: for the floor traders, for commercials, and for the public. Consequently, volume interpretation has many possibilities.

Condition         Reference point     Interpretation

Bracketing:       Volume decr.        positive for continuation
Bracketing:       Volume incr.        positive for change
Bracketing:       Volume stable       positive for continuation
Testing:          Volume decr.        positive for continuing bracket
Testing:          Volume incr.        positive for trending
Testing:          Volume stable       positive for continuing bracket
Trending:         Volume decr.        positive for change
Trending:         Volume incr.        positive for continuation
Trending:         Volume stable       positive for cont. if volume high
Trending:         Volume stable       positive for chg if volume low
Trend end:        Volume decr.        positive for change
Trend end:        Volume incr,        positive for contin. of trend
Trend end:        Volume stable       pos. for contin. of tnd. if hi vol
Trend end:        Volume stable       positive for chg of trend low vol
 

Depending on market condition, the volume reference point helps point out the market’s expected behavior. Other reference points are simple go, no-go, like the Trade Facilitation Factor (TF). If TF is larger than a certain amount, the market is grinding to a halt. If smaller, trade is being facilitated. Yet other reference points are of use only in certain cases; internal trends are meaningful in balanced markets (in trending markets the trend is external).

Continuation or change is found from the sum of the pertinent reference points. An important part of the home-study course is learning the interplay of the various reference points under different market conditions, and how to combine them.

5. Managing a Trade

Trade management comes down to a single question: should we stay in or exit? The answer depends on our evaluation of the probability for continuation or change. The Auction Market Analysis training program starts with the five primary reference points noted above, and adds the sixth, 'node measurement' of the Overlay's pauses during trends for continuation decisions. These six are enough to support market analysis for responsive and breakout day trading, as well as breakout trend trading. That is, we have enough information to estimate the probability of continuation, enough to get started. In later lessons of the course, we will find that additional reference points increase our depth of market knowledge and thus improve our chances of making the correct determination in our continuation analysis.

Procedure: Trading Practice

The Auction Market Analysis methodology starts with the assumption that you are a novice trader (in auction markets). You first learn to get the TCP data and analyze it with the CISCO basic rules for five reference points. After about three months, you move into the advanced beginner level, where you start to include more reference points and become more efficient in analyzing the data (by now, your daily analysis should take no more than five minutes per market). At the competitive trader level, which you should attain sometime after the sixth month, you will have a good understanding of markets and be able to analyze them for your own needs -- you no longer rely solely on the CISCO strategies. A competitive trader trades profitably.

5a. Fixing A Strategy for the Day

You develop your strategy before the market opens, defining risk and, where appropriate, setting the trading target. From the point in the day that market action creates the trade, until the close, your pre-set strategy is followed. Win or lose, your pre-open strategy is not changed by subsequent market action. Obviously, the swing/position trader's work is done when the order is sent to the broker. The day trader rarely needs real time data. (Delayed ticks are helpful to the day trader, however, in defining market flow; in case of an error on your trade, you want to know quickly what occurred on the floor.)

5b. Feedback from Trading

Trade evaluation on the basis of results is an important part of the course. Positive feedback from the results allows you to recognize and winnow out your errors. Paper trading is just about as effective as actual trading for training. As the course progresses and you begin incorporating your own trading ideas into your strategy, the feedback becomes invaluable. Typically, your experimentation will start at about the third month of the training, during your transition from novice to advanced beginner. By the end of the course year you should be in full control of your trading strategies.

5c. Low-Risk Trading

A significant advantage of understanding your market lies in knowing what to expect. When the unexpected occurs, one recognizes it quickly. Knowing you are wrong on a trade allows you to take your loss immediately. This limits losses and saves you from that bane of the neophyte trader, 'holding and hoping' while a loss grows and grows. The focus in this course is on limiting risk rather than on maximizing gain. There is a lot of truth in the saying "Take care of your risk and your gains will take care of themselves."

6. Market Generated Information, A Review

Market Generated Data is the market’s transactional data collected and organized so that price and time (and/or volume) are displayed. This data is the source of most reference points in the Home Study Course.

6a. Market Profile (tm): Identifies Day Market Structure

An example of market generated data is the Market Profile; essentially a half-hour bar chart of a day collapsed onto the vertical price axis, with frequency of occurrence (volume) on the horizontal. The volume allows one to immediately see which prices are accepted by the market (heavier volume), and which are rejected (say the highs and lows). The hallmark of market generated data is that one can see that all prices are not treated equally by the market.

A typical Market Profile shows that the day’s 'structure' is bell-shaped with low activity around the top and bottom prices and heavy activity in the middle. Note that market price is on the vertical and volume (time) is on the horizontal axis. Market Profiles can be built in real (or delayed) time from a live ticker.

The idealized Market Profile below, with the bar chart, shows the bell shaped curve for a day with 6 half-hour trading sessions. On this day, the first half-hour, A (8 to 8:30 AM), set the range for the day. As the day wore on, trading was confined to narrower and narrower ranges. The profile shows the characteristic bell shape. Each x signifies that that price was traded at least once in the specified half-hour. An x is called a TPO (Time Price Opportunity, or That Price Occurred). No matter how many times a particular price trades in a specified half-hour period, only one TPO is recorded.

(In the Profile below, the price 99.31 traded at 8:05, 8:12, 8:21, 8:29 and 8:32. There were four trades or ticks, in A period and only one in B period. However, there was one TPO at 99.31 in A period and one TPO in B period. Thus the Profile is merely registering that some trading occurred in a price-time period. What is important is the number of periods that price returns to a certain level' i.e. the popularity of that price. Popularity = acceptance.


      Profile     Half-hour bars
                A   B  C   D   E   F
100:00 A        x
99:31  AB       x   x
99.30  ABC      x   x   x
99:29  ABCD     x   x   x   x
99:28  ABCDE    x   x   x   x   x
99:27  ABCDEF   x   x   x   x   x   x
99:26  ABCDEF   x   x   x   x   x   x
99:25  ABCDEF   x   x   x   x   x   x
99:24  ABCDE    x   x   x   x   x
99:23  ABCD     x   x   x   x
99:22  ABC      x   x   x
99:21  AB       x   x
99:20  A        x

Commentary on the idealized profile

Note that the prices 100 and 99.20 traded only once (in 'A' period). These prices were not accepted by the market. The prices 99.25, 99.26 and 99.27 traded in every period. These prices were well accepted by the market. They were most popular, winners of the daily popularity contest; the center of the day's value.

On this day, the trading range continued to narrow throughout the day. The market was 'shutting down'. TPO volume was falling. Traders were leaving this pit for others where there was more opportunity. Uncertainty was high. If the pros have little interest in a market, you should have a very good reason if you want to trade there.

6b. Liquidity Data Bank (tm): Identifies Who is doing What at Which Prices

The Liquidity Data Bank (LDB) is 'market generated data' i.e. it displays actual trading volume in addition to the frequency of occurrence that marks the Market Profile. The Liquidity Data Bank further breaks down the volume-at-price by type of floor participant (Cti1 = floor traders, Cti2 = commercials, Cti3 = off floor members and Cti4 is the public). Each LDB report also includes a Market profile.

LDB information is included in the Trader Control Database. The profile for the day is used in the Overlays. Commercial activity is measured (following the techniques in the book Value Based Power Trading, starting at page 33). Volume appears on the day Market Review as one of the reference points.

You will not be called on to translate the LDB Reports in the Home Study course. However, the Liquidity Data Bank report is the most valuable database extant in the futures literature. You should be aware of it’s existence. There is also an hourly LDB report that lags real-time. As the clearing process continues to improve, the lag decreases. Soon, current volume-at-price data will be a reality. Thus, we have the prospect of improved continuation analysis (discussed in the last months of the course) prior to the close.


CBOT VOLUME REPORT TRADING DATE:    07 25 96  SEP 96   T-BOND (CBOT) DAY
CONTRACT: TRADING BEGINS  0720 (CST);  CLOSES 1405;
TPO SYMBOLS ARE    Z$ABCDEFGHIJKLM
First Period is 10 min;   Last Period is 5 min,  Others are all 30 min.

PRICE   VOLUME  %VOL  %CTI1 %CTI2  %CTI3  %CTI4 BRACKETS(*)

10830      944   0.2   50.4  12.7    1.5   35.4 D <== Commercial action
10829     4746   0.8   54.3   3.1    6.6   36.0 DF
10828    30064   4.9   53.4  10.1    2.1   34.3 DEF
10827    25774   4.2   56.6  11.5    3.9   28.0 DEF
10826    14968   2.5   50.9   9.5    5.1   34.5 DEF
10825    18208   3.0   54.3   6.5    1.9   37.4 DEFGH
10824    23446   3.8   55.3   9.9    2.3   32.6 DFGH
10823    20260   3.3   49.4  10.3    3.8   36.6 CDFGH
10822    20716   3.4   56.1   5.3    1.7   36.9 ABCDFGH <= Public start
10821    17906   2.9   64.7   8.4    2.1   24.8 ABCDGH   buying D period
10820    28984   4.8   59.9   9.2    2.6   28.4 ABCDH (note unusually
10819    29990   4.9   64.1   9.6    1.8   24.5 ABCDH    high Cti4
10818    25342   4.2   60.8   9.6    2.2   27.4 ABCH     volumes)
10817    31254   5.1   61.4  10.8    2.6   25.1 ABCHJ
10816    35758   5.9   60.6   9.3    2.2   27.9 ZABCHIJK
10815    28534   4.7   57.6   5.7    1.5   35.2 Z$ABHIJKLM
10814    36032   5.9   58.0   4.7    3.0   34.3 Z$ABHIJKLM
10813    35282   5.8   58.0   6.7    3.0   32.3 Z$ABIJKLM <= Close
10812    28740   4.7   60.8   9.7    3.3   26.3 Z$IJKLM
10811    27388   4.5   61.8   7.2    2.8   28.2 Z$IJKL
10810    34562   5.7   57.3   8.0    2.5   32.1 Z$IJKL
10809    34660   5.7   60.6   6.8    2.5   30.0 Z$IJKL
10808    27978   4.6   57.0   7.9    4.5   30.7 Z$IJKL
10807    16204   2.7   60.6   5.6    2.6   31.2 Z$IJL
10806     8468   1.4   54.1   6.1    0.4   39.4 ZIJL
10805     2538   0.4   54.1  10.8    0.5   34.6 ZI
10804      630   0.1    7.1  15.9    0.0   77.0 Z

                                                                                                                  %CTI1  %CTI2 %CTI3  %CTI4
VOLUME FOR SEP 96 T-BOND, DAY  609376   58.3   8.2   2.7  30.8
VOLUME FOR ALL T-BONDs DAY     610160   58.3   8.2   2.7  30.9

70% VOLUME SUMMARY
  PRICE  VOLUME  %VOL  %CTI1  %CTI2  %CTI3  %CTI4 BRACKETS
  10822  443126  72.7   59.8    7.9    2.6   29.7 Z$ABCDFGHIJKLM
  10808

Reading the LDB Report

The LDB Report above illustrates a number of interesting elements of the LDB data and it’s analysis. The bulk of the volume (70%) lies between 10822 and 10808. This is the value area, the region in which commercial traders (Cti2) do most of their company business.

The Initial Balance (IB), the first hour or so of trading (symbols Z, $, A (Z is 10 minutes)) is controlled by the floor traders (CTI1). The IB was breached by one tick in C period (9 - 9:30 AM). In D period (9:30 to 10 AM), a run of seven ticks ($218) that ended at 10830 was driven by the public (CTI4) traders. How do we know the public was driving? Because their volume near the top (around 36%) was higher than the day's average (30.8%).

Then the commercials stepped in and buffered the market rise (heavy CTI2 selling volume at 10830, 10828 and 10827). This knocked price back down. The public came back buying in F period (10:30 to 11 AM), running price back up to 10829, and the commercials sold again, with price ultimately settling at 10813.

Altogether, we see the floor traders (CTI1) control the first hour, the public (CTI4) seize control for a time in D and F periods and the commercials (CTI2) come in to quell the public (CTI4) uprising as needed. The market started and ended the day in balance. One sees clearly that the price 10830 was rejected on low volume (and only a single TPO, Z) while prices throughout the entire value area (10822 to 10808) were well accepted, trading at each price in many periods.

LDB reports have same-day volume. LDB volume is pure volume with no spreads or out-trades. LDB's are the only source of same-day volume and are thus a rich fountain of reference points. The most important LDB reference points are incorporated into the Trader Control Database, the primary database used in Auction Market Analysis.

6c. Overlay Demand Curves (tm): Identification of Market Condition

Overlay Demand Curve graphics and the Market Profile are similar, except that the Market Profile is for a single day, while the Overlays include as many days, or periods, as desired. Also, the Overlays do not identify time periods because the time frame is normally several days and individual day rotations are no longer significant in the analysis. For ease of comparison, CISCO standardized on Overlays of 5, 10, 15 and 20 days. (You can make your own Overlays of from 2 days to over 500 days on the CISCO BBS.)

The Overlay tm) derives from half-hour bars by merely summing the number of occurrences of trading at each price, over the time frame chosen (say five days). Just below is an idealized series of five days of half-hour bars for an idealized market of 1.5 trading hours per day, (where A is the first, B is second and C is the third half hour). Each x is a TPO.

           Day 1       Day 2     Day 3     Day 4     Day 5

          A  B  C    A  B  C   A  B  C   A   B  C    A  B  C  
100:00    x
 99:31    x  x
 99:30    x  x  x
 99:29    x  x  x    x
 99:28    x  x  x    x     x
 99:27    x  x  x    x  x  x
 99:26    x  x  x    x  x  x   x
 99:25    x  x  x    x  x  x   x  x
 99:24    x  x  x    x  x  x   x  x      x
 99:23    x  x  x    x  x  x   x  x      x          x
 99:22    x  x       x     x   x  x  x   x  x       x     
 99:21    x          x         x  x  x   x  x       x  x  
 99:20    x          x         x  x  x   x  x       x  x  
 99:19               x            x  x   x  x       x  x  
 99:18                            x  x   x  x       x  x  x
 99:17                                   x  x  x    x  x  x       
 99:16                                      x  x    x  x  x 
 99:15                                         x    x  x  x
 99:14                                         x    x     x
 99:13                                         x          x
 99:12                                                    x                                                     

A graphic like the one above, shows relative price popularity. Over the five days covered, the price 99:12 got only one vote, one TPO, while 99:16 was traded in five different half hour time periods. The market accepted 99:16 as a measure of 'fair value' five times as often as for 99:12.

If you add across the five days of half hour bars, you will get the idealized Overlay distribution shown below, termed 'TPO Volume' (see 6a. above or the Glossary for definition of ‘TPO’).

Sample, Idealized, Overlay Demand Curve (tm);  with Reference Points

           TPO Volume
  100:00   x
   99:31   xx Trading above the upper limit alerts to start of up-trend
   99:30   xxx <== Upper bracket limit: Breakout point.
   99:29   xxxx
   99:28   xxxxx <== Octant: One-eighth of bracket range.
   99:27   xxxxxx
   99:26   xxxxxxx (<== Quadrant: One-quarter of bracket range.)
   99:25   xxxxxxxx
   99:24   xxxxxxxxx
   99:23   xxxxxxxxxx
   99:22   xxxxxxxxxxx (<== Middle of distribution.)
   99:21   xxxxxxxxxx
   99:20   xxxxxxxxx
   99:19   xxxxxxxx
   99:18   xxxxxxx (<== Quadrant: One-quarter of bracket range.)
   99:17   xxxxxx
   99:16   xxxxx <== Octant: One-eighth of bracket range.
   99:15   xxxx
   99:14   xxx <== Lower bracket limit: Breakout point.
   99:13   xx Trading below the lower limit alerts to start of down-trend
   99:12   x

The Overlay Demand Curve displays the market condition. Markets can be either (1) balanced or bracketing, (2) testing the bracket for breakout, (3) trending, or (4) ending a trend. These four conditions comprise the market cycle.

A balanced condition is the starting point for understanding the market generated data; i.e. for providing the answer to 'who is doing what, where, and when they are doing it', the reference points. Note that market generated data incorporates any news that drives the market, so you have the effect of the news without the uncertainty of trying to forecast, or second guess news reports.

6d. Trader Control Package (TCP):A Source of Trading Reference Points

The Trader Control Database is heavily used for Auction Market Analysis trading. It contains the reference points from the Overlay Demand Curve, as well as nearly two dozen more from profiles, LDB's and other market sources 

A minimal Basic (Basic) breakout (day) strategy:
1. Long at 1 tick above the Upper Limit, Stop at Upper Octant or exit on Close.
2. Short at 1 tick below the Lower Limit, Stop at Lower Octant or exit on Close.

A minimal Basic (Basic) breakout (swing) strategy:
1. Long at 1 tick above the Upper Limit, Stop at Upper Octant or exit on a prior Node.
2. Short at 1 tick below the Lower Limit, Stop at Lower Octant or exit on a prior Node.

Examples

7a. TRADE 1 (Gray)

Example of a Breakout Trend Trade

Rules, the Basic Exit Trading Model for Day trading
1. Start with a Bracketing market and no position held.
2. Enter on a breakout, placing a protective stop at the Octant (1/8 of bracket range).
3. Exit if price closes back within the old bracket, if a new bracket forms.
4. If the protective stop (Octant) is not elected during the day, exit on the close.
....Note that rule 3 expands the stop for the Basic - Basic day strategy.

TPO Volume Overlay (tm)
MAR 93 T-BOND (CBOT) DAY 01-28-93 TO 02-03-93
PRICE  TPOS   TPO VOL OVERLAY*

Data, close of Feb. 3, 1993, day prior to trade

10720     1  X
10719     1  X
10718     1  X
10717     1  X
10716     2  XX
10715     4  XXXX Upper Limit of Distribution
10714     8  XXXXXXXX
10713     9  XXXXXXXXX
10712    12  XXXXXXXXXXXX
10711    14  XXXXXXXXXXXXXX Upper Octant
10710    18  XXXXXXXXXXXXXXXXXX
10709    19  XXXXXXXXXXXXXXXXXXX
10708    21  XXXXXXXXXXXXXXXXXXXXX Close
10707    21  XXXXXXXXXXXXXXXXXXXXX
10706    24  XXXXXXXXXXXXXXXXXXXXXXXX
10705    24  XXXXXXXXXXXXXXXXXXXXXXXX
10704    30  XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
10703    33  XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
10702    36  XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
10701    36  XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
10700    29  XXXXXXXXXXXXXXXXXXXXXXXXXXXXX
10631    33  XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
10630    31  XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
10629    28  XXXXXXXXXXXXXXXXXXXXXXXXXXXX Lower Oct
10628    23  XXXXXXXXXXXXXXXXXXXXXXX
10627    18  XXXXXXXXXXXXXXXXXX
10626    11  XXXXXXXXXXX
10625     6  XXXXXX Lower Limit of Distribution
10624     2  XX
10623     2  XX

X’s are TPO’s, (TPO Volume). TPOS column counts the number of times price appeared in a half-hour bar.

End of day, Feb 3, 1993. The price-volume distribution (the x’s), has a single quasi-bell shape. It is a single distribution. Close is inside the distribution (10708). Therefor, this is a balanced, bracketing market and we apply rule 1. Today, the commercials bought heavily at the low of the day. That drove price up, creating a lower commercial cap and shutting off trading below 10628.

The bracket range is 23 ticks (10715 to 10625), Octants (1/8 of the range) are 4 ticks ($125). That is our trading risk (rule 2). This is clearly low-risk trading. Numbers in the Rot Profile identify days, 5 – Jan 28, 6 = Jan 29,…, 9 = Feb 3. Primary reference points are the Limits (10715 & 10625) and Octants (10711 & 10629).

Recap: Reference points, end-of-day February 3
     Bracket Limits:     Upper 10715,   Lower 10625
     Octants:                 Upper 10711,   Lower 10629

Trading on Feb 4, an Upside Breakout.

TPO Volume Overlay (tm) and Price Rotation Profile
MAR 93 T-BOND (CBOT) DAY 01 28 93 TO 02 04 93

PRICE TPOS TPO VOL OVERLAY *
10801   2 XX
10800   2 XX
10731   3 XXX
10730   4 XXXX
10729   7 XXXXXXX
10728   9 XXXXXXXXX
10727  13 XXXXXXXXXXXXX
10726  14 XXXXXXXXXXXXXX Node #1
10725  11 XXXXXXXXXXX Close
10724  10 XXXXXXXXXX
10723   6 XXXXXX
10722   2 XX
10721   2 XX
10720   1 X
10719   1 X
10718   1 X Gap Up entered long at 10718
10717   1 X
10716   1 X
10715   2 XX Yesterday (02/03) Upper Limit
10714   4 XXXX
10713   5 XXXXX
10712   8 XXXXXXXX
10711  11 XXXXXXXXXXX Exit Stop (Yesterday Octant)
10710  13 XXXXXXXXXXXXX
10709  13 XXXXXXXXXXXXX
10708  15 XXXXXXXXXXXXXXX
10707  16 XXXXXXXXXXXXXXXX
10706  19 XXXXXXXXXXXXXXXXXXX
10705  20 XXXXXXXXXXXXXXXXXXXX
10704  26 XXXXXXXXXXXXXXXXXXXXXXXXXX
10703  28 XXXXXXXXXXXXXXXXXXXXXXXXXXXX
10702  30 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
10701  30 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
10700  22 XXXXXXXXXXXXXXXXXXXXXX
10631  26 XXXXXXXXXXXXXXXXXXXXXXXXXX
10630  25 XXXXXXXXXXXXXXXXXXXXXXXXX
10629  22 XXXXXXXXXXXXXXXXXXXXXX
10628  17 XXXXXXXXXXXXXXXXX
10627  13 XXXXXXXXXXXXX
10626   8 XXXXXXXX
10625   4 XXXX
10624   1 X
10623   1 X

X’s are TPO’s, (TPO Volume). TPOS column counts the number of times price appeared in a half-hour bar.

Breakout using the Bracket data from the market of February 3.
The breakout (rule 2) came on a gap-up. Heavy trading around 10726 led to the suspicion that the move might have been capped (congesting) there.

Day Trading
Entry long is at 10718, the open, with a stop at the Octant (10711, rule 2).The Trade exited on the close at 10726 for a gain of 7 ticks ($218), (rule 4).

 

Recap: The profitable breakout trade of Feb. 4, behaved as expected. The bracket of Feb. 3, was a set-up. We used the Overlays as they came from the Trader Control database (TCP), the raw data. TCP raw data for a future are extensive, running to six or more pages. A popular, compressed format is the Visual Graphic (VG). The VG is used extensively in the Home Study introduction to trading with the Auction Market Analysis. An example is just below.

Visual Graphic for March 1993 T-bonds, February 3 and 4, 1993:

Contrast the Visual Graphic just above with the Overlays that came before. See how much more compact the VG is? The half-hour bars on the r-h side of the VG facilitates the trading analysis. A complete VG has all the reference points posted on it. In a single page, you have the bulk of the Trader Control data for a future. This makes the daily trading analysis a much more efficient process.

7b. TRADE 2 (GOLD)
     Advance Information of a Breakout from Commercial Action:
     The commercials tipped us off to the likelihood of a change in value the day before it happened.
....Note the addition of the Commercial Action reference point to the Basic -Basic swing strategy.

Step 1: Selecting Trades from the Bracket Screen.

The Bracket Screen at the close of 12/18/92 showed the 5 day Overlay for the March 1993 T-bond to be in balance. The Upper Limit is 10412, the Lower Limit is 10322; Upper Octant is 10409, Lower Octant is 10325; and the Middle is 10401.

Step 2: Examination of the 5 Day T-bond Overlay MAR 93 T-BOND (CBOT) DAY
Mar 93 T-bond Overlay Demand Curve (tm)  12 14 92 TO 12 18 92

PRICE TPOS  TPO VOL OVERLAY
10415    1  X
10414    2  XX
10413    2  XX
10412    3  XXX Upper Limit
10411    3  XXX
10410    4  XXXX
10409    6  XXXXXX Upper Octant
10408    8  XXXXXXXX Close
10407   16  XXXXXXXXXXXXXXXX
10406   19  XXXXXXXXXXXXXXXXXXX
10405   23  XXXXXXXXXXXXXXXXXXXXXXX
10404   30  XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
10403   25  XXXXXXXXXXXXXXXXXXXXXXXXX
10402   23  XXXXXXXXXXXXXXXXXXXXXXX
10401   16  XXXXXXXXXXXXXXXX
10400   16  XXXXXXXXXXXXXXXX
10331   17  XXXXXXXXXXXXXXXXX
10330   20  XXXXXXXXXXXXXXXXXXXX
10329   20  XXXXXXXXXXXXXXXXXXXX
10328   16  XXXXXXXXXXXXXXXX
10327   13  XXXXXXXXXXXXX
10326   13  XXXXXXXXXXXXX
10325    8  XXXXXXXX Lower Octant
10324    7  XXXXXXX
10323    5  XXXXX
10322    3  XXX Lower Limit
10321    1  X

X’s are TPO’s, (TPO Volume). TPOS column counts the number of times price appeared in a half-hour bar.

Reference points: Limits 10412 & 10322, Octants (stops) 10409 & 10325.

This market is balanced, in a bracket. Value is defined. Shape and balance give an excellent approximation to the ideal bell shape.

Center of value 10401. Breakouts: Upside         10413  with stop  10409
                                                                 Downside  10321  with stop   10325

Step 3: Commercial Market Activity: The Liquidity Data

"The smart money’ redefines value daily."

CBOT VOLUME REPORT
CONTRACT:  MAR 93 T-BOND (CBOT) DAY,  TRADING DATE: 12 18 92

TRADING BEGINS 0720 (CST);CLOSES 1405;TPO SYMBOLS ARE Z$ABCDEFGHIJKLM
FIRST PERIOD(Z) IS 10 MIN;  LAST PERIOD(M) IS 5 MIN;  OTHERS, 30 MIN

PRICE   VOLUME   %VOL   %CTI2   %CTI4  BRACKETS(*)
10410     1619    0.9     2.0    40.1  LM
10409     6609    3.7     7.4    34.2  ZLM
10408    14527    8.2     9.5    37.5  Z$L
10407    17007    9.6    17.7    25.4  Z$AL
10406    25074   14.2    15.0    22.3  Z$ABJKL
10405    18244   10.3    16.3    28.8  Z$ABFGJKL
10404    32112   18.2    15.3    27.3  $BCEFGHIJK
10403    35414   20.1    14.2    25.1  $BCDEFGHIJ
10402    19275   10.9    18.0    28.7  $BCDEHIJ ç Commercial Action
10401     6314    3.6    16.0    20.6  D                     Buying
10400      363    0.2     0.0    49.6  D

Liquidity Data Bank:
Volume = contract volume, no spreads; %VOL is the percentage of volume traded that day at that price; %CTI2 is the fraction traded at that price by the commercials; %CTI4 is the fraction traded at that price by the members filling for the public. (CTI1 (floor traders) and CTI3 (members off floor) are deleted to save space.)

Brackets label the day’s Market Profile (tm) where the letters Z, $, A,.. identify the time periods (Z = 7:00 to 7:30, $ is 7:30 to 8:00, A = 8:00 to 8:30, etc.).

Commercials normally do their company business in the value area. When they are unusually active outside the value area, they may be capping, or buffering the market (keeping it in balance). This activity often defines value, or changes in value. We measure their activity with the procedures outlined in the text, "Value Based Power Trading", pages 33 to 35. This information is an integral part of the Trader Control Database. Here, it shows commercial capping on the bottom prices of the day at 10402. But in Step 2, 10402 is seen to be just about the middle of the balance region. Why cap there? Could it be that value has shifted and, if so, is now higher?

Our conclusion: There is a good chance that value has increased. Strategy for the next trading day (Monday) is to trade the market long. Day traders will take no shorts. Position traders look for an upside breakout, say at 10413.

Recap: Reference points, end-of-day Dec. 18, for trading on Monday, Dec.21
Bracket Limits: Upper 10412,    Lower 10320
Octants:             Upper 10409,    Lower 10323
Commercial:     Lower 10402

Step 4: The Trade on Monday, 12/21/92

The Trade on Monday, Dec. 21 - Using Reference Points from Dec. 18

In Trade 1 we did the analysis with Overlays and merely displayed the Visual Graphic at the end. In this trade, we will use the VG for analysis.

The Trade on Dec 21 - using the Reference Points from Dec. 18.

Monday’s trading opened at 10409, well above the five day center of value on Friday (10401) (see Visual Graphic, half-hour bars, upper r-h corner). The day trader could have bought here with only a two-tick downside. Successive day trades would be made on pullbacks. A conservative breakout day trader would have taken a long position at 10413, the regular breakout point from the Overlay (Step 2).

The day closed at 10428, a 15 tick ($468) profit from entry. The commercial activity provided an additional dimension of safety to the regular Overlay breakout scenario. This additional information provided directionality and thus decreased the risk in an already low-risk scenario.

7c. TRADE 3

Example of a Responsive Day Trade for Soybeans Oct 8, 1996

Market Condition

As of the close on Oct 7, 1996, the 10 day Overlay was in balance. Confirming the 10 day balance, the 5 day was also balanced. A balanced market sets the stage for a responsive day trade or a breakout the next day.

The concept for the responsive trade is simple: if price rotates away from the middle of the distribution and does not break out (trend start), then the chances are that price will tend to move back toward the middle of the distribution, i.e., toward the center of value. A responsive trade comes when the market offers an opportunity—price well away from value.

Strategy

The proposed strategy is based on the Limit - Octant pair. The Octant is 1/8 of the distribution range (range is Upper Limit – Lower limit).

Rules for a Basic Responsive day trade.
If price moves above the Upper Octant (below the Lower Octant) an alert is set.
A short will be taken as price crosses below the Upper Octant
....(a long is taken for price moving above the Lower Octant).
The target exit is the bracket middle price.
The protective stop is the appropriate limit (Upper for short, Lower for a long).
If neither stop nor target is hit, one exits on the close.

The soybeans 10 Day Overlay on October 7 had a single distribution with an Upper limit of 765:0 and a lower limit at 727:0. Dividing the range of 38 cents by 8 gives an Octant value of 4:6 cents. An Octant is roughly equivalent to the two standard deviation point in a bell shaped curve. That is, when price gets as high as the upper Octant or as low as the lower Octant it signals an unusual event. That price region between the Octant and it's associated limit is an 'area of uncertainty' -- price may be ready to breakout or it may proceed back to the middle of the distribution. The table below lists the important prices (including the five primary reference prices), the extensions, for the day's (Oct 7) Overlay.

Overlay (tm) Analysis for:  Nov  96 Soybeans  for  Oct 7, 1996
Location               Price            $Pot          $Risk
Upper Limit             7650
Octant                  7602             712           237
Mid Dist                7460
Octant                  7316             712           237
Lower Limit             7270

Using the reference points of Oct. 7 for trading the market of Oct. 8;
Responsive trading alert short if price between 765:0 and 760:2.
Go short at 760:0, target 746:0, stop 765:0.
End of day: If still in the position, exit on close.

Responsive trading alert long if price between 731:6 and 727:0.
Go long at 732:0, target 746:0, stop 727:0.
End of day: If still in the position, exit on close.

This strategy risks one Octant for a potential gain of three Octants, a three to one reward to risk ratio for responsive trades. The dollar risk/reward are shown in the $Pot and $Risk columns: risk is $237 for potential (target) return of $712.

The half-hour bars below, a part of the Trader Control database, show the trading for the next day, October 8.

An analysis of the resultant trade is below the chart.

November Delivery Soybeans

HALF-HOUR AUCTIONS FOR 10 08 96
(Numbers in bars are ticks)
(tick = price change)

Price            D   E   F   G   H   I   J   K
7374                                     1   3
7372                                     5   6
7370                             8   6  11  19
7366                            13   9   7  12
7364                     1   1  18  14   5  11 <== Close (Exit)
7362                     1       6  18   2  11
7360                     5   5  13  12   3   9
7356                     6   5  11  11  11
7354                    10   3  11   9  13
7352                     5   5   4   4   9
7350                     3   6   4      11
7346                     2  11           7
7344                     3  15   1
7342                     6  10
7340             2   7   4   6
7336             1  12   7
7334            12  18  13
7332             7  10  13
7330            18   9  13
7326             2  11   7
7324            16  12   4
7322            11   7
7320            24  15 <== Responsive Long at 732:0;
7316            12  12             Target 746:0; Stop 727:0.
7314             7   6

The trade:

Entered long in D period (9:30 to 10 AM) at 732:0. Stop at 727:0 not elected (low of day 731:4). Target of 746 not elected (high of day 737:4). Exit on close 736:4 for a profit of 4:4 ($225) less commission and slip.

If the market had moved against the trade, the loss would have been 5 cents per bushel, or $250. If price had gone up to the middle, profit would have been 14 cents, or $700. So the maximum potential gain to the maximum risk was very nearly three to one. How often does the market offer such opportunity? About once every two trading weeks. The breakout trade (trade 1, above) showed a one-day gain of 9 ticks ($281) with a risk of 7 ticks ($218) because of the gap open (without the gap the risk stop would be 5 ticks ($156)).

Trading Recap: These three trades illustrate the use of market understanding to minimize risk and the use of simple models to trade with. In trade 2, the commercial information substantially lowered the trade risk. Trade 1, a simple breakout trade, could have been the start of a longer term trend trade. The responsive trade is an example of trading when a particular opportunity is offered by the market. The Auction Market Analysis trader thus has many analytical tools, and hence, a number of types of trades to consider.

 

8. Subscription Information

 You can subscribe to the Home Study program either

annually,  $1,200 for the year (lessons + daily data)

or monthly,  $109 (30 day notice to terminate)

Sign up on the CISCO home page  http://www.cisco-futures.com

The lessons and supporting information, including the workbook, is available separately for $50 per monthly lesson or $600 for the year. All 12 lessons are downloadable from the CISCO site.

9. Services Included

Your annual or monthly subscription includes:

  1.  Course materials on the Internet: lessons, etc
  2.  Daily access to the Trader Control Package
  3.  Daily access to 'daily data' updates
  4.  Daily access to tick data on up to 5 futures.
  5.  1 Weekly call to CISCO 15 min max ($2 min addl.).
  6.  Workbook (month 5).
     

10. Steps in Getting Started

1) Sign up (either annual or monthly package).

Annual:   12 months of lessons + daily trading data, $1,200.00
Monthly: $109 (30 day notice for termination)
Get Account # and Password for both BBS and Internet.

2) Become familiar with the free material on the internet (Introduction and Theory & Practice). It is a thorough preparation for the course, including examples of trades, how to get the daily data and how to use it.

3) Begin downloading daily trading/reference point data You can use either the CISCO BBS or the Internet, or both.

4) Analyze your selected markets with the primary reference points
Overlay: Upper Limit, Upper Octant, Lower Limit, Lower Octant.
Internal Trends: Rotation Index/Quadrant of Close.
Commercial Action: Upper and Lower capping.

5) You should be clear on the background (items 1 through 8 below). Then you are ready to start the regular twelve month series of lessons and daily (paper) trading. Keep copies of "Introduction" and "Theory and Practice" available for ready reference. You get the details of the course itself from items 1, 2, and 3. The data are covered in item 4, trading scenarios and basic trading strategies are in 5. Items 6 and 7 are the glossary and general background information. Results from trading studies are in item 8.

 Under the "Home-Study Course" banner line: 
  1.  Look at the HIGHLIGHTS page
       (click on  'Highlights of Home Study Course')

  2.  Get Home-Study 'INTRODUCTION' in your browser 
       (click on 'Introduction to Home-Study Course').
       This shows how Auction-Market trading works.
         Study it; print it as you choose.

  3.  Then, get 'THEORY and PRACTICE' into your browser
       (click on 'Theory and Practice of Value Based Power Trading').
       This gives you trading examples.
         Study it; print it as you choose.

  3a. Take the test:  Click on 'Test on Theory and Practice of VBPT'

  4.  Learn more about the DATA used in Value Based Power Trading
       Click on 'Market Generated data'

  5.  Examine three trading scenarios
       Breakout trend trade:  click on 'Breakout Trade'
       Responsive, balance trade:  click on 'Responsive Trade'
       Responsive & Breakout trade:  click on 'Responsive and Breakout Trade'

  6.  Definitions in 'Glossary'; Trading symbols in 'Commodity Symbols'

  7.  Frequently Asked Questions (FAQs)
       Go to "CISCO Data FAQs", click on 'Home Study Course'

  8.  Extended examples of trading:  
       Go to the banner line "Results of Trading with TCP data"
        Click on 'Results of simple Breakout...' for trade by trade of
                  basic model on T-bonds for 1996.
        Click on 'Results for less simple Swing...' nine months of 1995
                  T-bond trading with more reference points used.



11. Course Outline (green)

Training by Quarters

Theory & Practice of Value Based Power Trading
Futures Trading for the Ordinary Trader:
Trading as a business
Data used
Reference Points
Strategies
Trading Examples:
Breakout
Responsive
Responsive + Breakout
Market Condition + Strategies
The Trader Control Package: Primary data source for low-risk trading


Quarter 1, Month 1, 2, 3: Familiarization with Auction Market Analysis
Major Auction: New Trades, Starting Out: Selection Validation Confirmation Strategy Swing Trading Basic Model: Elements of the Model Example Potential Improvements Track Record Old Trades: Resetting stops Reference Points for trade continuance
Auction Market Analysis: Elements of Auction Markets Bell Shaped Curves Reference Points The Minor Auction: Short Term Analyses Continuation Reference Points ExpectedBehavior Trade Management: Commercial Reference Point Market Cycle Hourly LDB’s Fluctuation and Volatility: Long and Short term Volatility, Volatility as a Reference Point Responsive Day Trading: Overlay Demand Curve, Commercial Control, Model and Rules, Example
Reference Points: Overlay Demand Curve (3) Internal Trends Commercials Pauses in Trends (nodes)

Quarter 2, Month 4, 5,6: Review of Ref Pts, Volume, Trade Facilitation, Quadrant of Close
Cost Control: Discipline Rules Leverage Scale-up Scale-Down Cost Control Slip Workbook: Examples and Tests Trading: Data Market Profiles LDB’s, Hourly LDB’s Overlay’s Selection Management Menus Four Phases of Markets: Balance Testing the Balance Trending Testing the Trend Testing: Transitions, Continuation Analyses, Liquidity Data Bank and LDBRES Processor Reference Points: Volume Volatility Trade Facilitation Factor Quadrant of Close

Quarter 3, Month 7, 8, 9: Major to Minor Auction, Commercials, Review of Reference Pts
Reference Points: Value Area (2) Point of Control (POC) Shape Factor Trading Range (2) Initial Balance (2)
Interaction of Major & Minor Auctions: Major/Minor Auction Timeframes Short Timeframe Traders Commercials: Function/Role Capping Going With Work-out-time Risk Limitation Three Measures Review of Reference Points: The Basic Six Volume Volatility Value Area Others

Quarter 4, Month 10, 11, 12: Technical Analysis, Exiting, Review
Reference Points: New Highs/Lows Total TPO’s TPO’s Above/Below POC Top4/Bot4, Congestion
Technical Analysis: Role in NMA Cycles Oscillators Moving Averages Pivot Points Trade Exit: Basic Exit Model Exiting (Why) Examples
Review: Major/Minor Auctions Testing Day and Swing Trading Exits Money Final Exam

CISCO 1 303-306-1521
PO Box 441396, Aurora, CO 80044 1 800 800 7227
http://www.cisco-futures.com
dljones@cisco-futures.com