CISCO Futures
1-303-306-1521 1-800 800 7227 Fax 1-303-306-1572
http://www.cisco-futures.com
dljones@cisco-futures.com
DTG Auction Market/Profile Training, Sep 15, 2005
Outline
http://www.cisco-futures.com/dtg200509.html
My job today: To help you understand how markets work. Our tools are Profiles
and Overlays. Profiles can show you current value; Overlays find longer
term, multi-day value. Value is not a price, but rather a range. For a given
timeframe, say one day, value is the Value Area and is the short timeframe support
and resistance.
Part 1. Profiles
1. Market Profile, the Beginning (See Steidlmayer on Markets, Wiley, 1989, 2003
Pete Steidlmayer: Member of CBOT October 23, 1963
Released information publicly: CBOT Market Profile Manual, 1985
Sees similarity of trading day behavior with a price - volume bell curve
1. Heavy trading in the middle, little at upper, lower limits
2. Recgnizes value as price over time value = price x time
3. Defines value area as +/- 1st standard deviation = 70% of central activity
VA gives reference point for responsive trading
(he sees this as 'solving the market' (pg 26))
4. Defines 'equation of results' as Market Understanding x You = Results
5. Differentiates between 'long term' and 'short term' traders
6. Recognizes utility of 1st hour of trading the initial balance
He finds 4 day types: non-trend, trend, normal, normal variation
7. Three main types of information: fundamental, mechanical, natural
Fundamental from news, etc (not timely)
Technical from market action (some good, some bad) Mkt Profile, LDB
Natural from understanding markets and market flow (most of rest of book)
Sample Profiles (we use Wheat: price ranges are narrow and easy to see)
Vertical is price
Horizontal is volume (contracts, ticks, TPO's, occurrence, etc.)
Market Profile Value Area from price - #contracts display
Meta-PROFILE GRAPHIC: Balanced Market
TPOs D = 9:30 - 10, E = 10 - 10:30, F = 10:30 - 11, G = 11 - 11:30
H = 11:30 - 12, I = 12 - 12:30, J = 12;30 - 13, K = 13 - 13:30
Implies dividing day into 1/2 hour 'mini days'
WHEAT (CBOT) DAY DEC 05 First date: 7 26 5 Last date: 8 1 5
26 27 28 29 1
3504 D
3500 D
3494 DK
3490 DGK G
3484 DEFGK G
3480 DEFGHIK D EG
3474 E DEHIJK D DEFGH
3470 E EHJK D DEFGHJ
3464 DE HK D DEGHJ
3460 DEF D DHIJK
3454 DEF K DE DIJK
3450 DFG EK DEI DIJK
3444 DG DEFK DEFGIJ DIJK
3440 DGK DEFGHIK DEFGHIJ DIK
3434 DGHJK DEFGHIJK DEHIJK DK
3430 DHIJK DIJ DK DK
3424 DIJK DJ K DK
3420 DIJK J K D
3414 JK D
3410 JK D
3404 J
Meta-PROFILE GRAPHIC: Directional Market
WHEAT (CBOT) DAY DEC 05 First date: 7 19 5 Last date: 7 25 5
19 20 21 22 25
3640 D
3634 D
3630 D
3624 D
3620 D
3614 D
3612 D
3610 D
3604 D
3600 DE
3594 DE
3590 DEF
3584 DEF
3580 DF
3574 F
3570 FG
3564 FGH
3560 FGH
3554 FGH
3550 FGH
3544 FGH
3540 FGHIK
3534 FIJK
3530 FIJK
3524 FIJK
3520 FJK D
3514 JK DE
3510 J DE
3504 J DE
3500 J DE
3494 J DEK
3490 DEK
3484 DEJK
3480 DEFJK
3474 DEFGHJK
3470 EFGHIJK
3464 EFGHIJK DE
3460 EFGHIJ DE
3454 EFGHI DEG
3450 FI DEGK
3444 D DEFGK
3440 D DEFHK
3434 D HIK
3430 DK HIJK
3424 DJK HIJK
3420 DEFJK HJ D
3414 DEFGHIJK H DHK
3410 DEFGHIJK H DHK
3404 DEFHIJK H DGHIK
3400 DEIJ DEGIK
3394 DEI DEGIJK
3390 DEFGJK
3384 DEFGJK
3380 DE
2. Don Jones and CISCO involvement in auction market analysis:
CISCO became the the first data vendor of LDB (1986)
Worked closely with Market Logic School (Steidlmayer & Koy) providing data for students
Jones was very interested in profiles as an aid to his own money management services
Traded and managed money (successfully) from 1972 using technical methods (Keltner Model)
Never knew what the market was saying. Tight money mgt, following strategy
was secret to success. All swing trading
Profile looked like a godsend
We could not make it work as a trading device, could not model it
Reviewed all three available profile publications, wrote an applications manual (1988)
Gave up. Wrote a program for 'day types', did not help (it did give us a new route)
Found the missing link: Market Condition, opened the door to research
CISCO Published Research (MUCH is available at 'References' on our site
Research concerns value (profile, Overlay) and extensions of value usage
Our research concentrates on understanding how markets work.
Markets are complex, self organizing and driven by feedback.
Persistence of Trends at contract highs and lows 1973
Continuation Data at Rollovers 1983
Adding Futures to a Stock Portfolio 1986
Index for Market-Generated Data 1987
Value Area from Tick TPO's 1987
Auction Market Theory, a Primer 1988
Trade Facilitation Factor 1988
Overlays and Market Condition 1988
Locating Value with Auction Data 1989
Enhancing Stock Portfolios with Futures 1990
Intra-day Trading with Tick Based Profile 1990
Intra-day Trading with Tick Based Profiles
Estimating Volume with Tick Data 1990
Overlay Demand Curves, the Missing Link 1992
Overlay Demand Curve Background
Explanation of Visual Graphic
Value in Futures Markets 1992
Value Based Power Trading with Overlays 1992
Commercials Identify Value 1993
Preferred Sample Rates in a Day 1993
Hourly LDB for Day Trading 1993
LDB Hourlies
Day-to-Day Serial Correlation of Futures Markets 1993
Advice Engine Background 2001
Advice Engine Explained
Auction Market Theory 2002
Auction Market Value Theory
Auction Market Theory and the Longer Timeframe 2002
Auction Market Value Theory
Daytrading Support and Resistance 2002
Market Profile and Meta-Profile Compared.
Model Development with Auction Market Theory 2002
Trading Model Development
Bringing Volatility to the Day-Traders Level 2003
Volatility
Trading Opportunity, Figure of Merit 2004
Trading Opportunity: The Figure of Merit
From Noise Trader to Insider 2004
From Noise Trader to Insider
Market's Second Chance 2004
Markets do NOT Turn on a Dime
Market-Meta Profiles Develop Market Structure 2004
Market/Meta Profiles Background
Market Profile/Meta-Profile History 1985 - 2004 2004
Market/Meta Profiles History 1985 - 2004
Overlay Demand Curves 2004
Overlay Demand Curve Background
Explanation of Visual Graphic
Auction Market Value Theory 2005
Auction Market Value Theory
The Market Unit 2005
The Market Unit
Market Waves are not Cycles 2005
Market Waves and Tech Analysis
Meta-Profile for Day Trading 2005
Meta_Profile and Overlay for Day Trading
Day Trading with Market Value 2005
Value in Trends from Meta and Market Profiles
Markets do NOT Turn on a Dime 2005
Markets do NOT Turn on a Dime
Day Trading with Visual Graphic and CMaPS May 18 2005
Meta-Profile and Visual Graphic Market Analysis, DJ Index, May 18, 2005
Day Trading with Visual Graphic and CMaPS May 17 2005
Meta-Profile and Visual Graphic Market Analysis, DJ Index, May 17, 2005
Day Trading the London Blast of July 7, 8 2005
Meta-Profile/Overlay Trading the London Blast
Pattern Trading, an Example 2005
Meta-Profile/Pattern_DayTrading_UU050722.html
Pivot Points, a Critique 2005
Pivot Points, a Critique
Candlesticks, a Critique 2005
Candlesticks, a Critique
Free Meta-Profile (CMaPS) on weekends 2005
Free Meta-Profile Analysis on Weekends
Developed two courses: 1 for swing trading, 1 for day trading
Both start the same way, learning how to tell market condition
Both teach the same thing: "a trader's job is to find the start of a directional move and to
exit the trade when congestion becomes apparent.
Recognition of directionality is recognition of changing value
Recognition of congestion is recognition of non or slowly changing value
First task: figure out value
Part 2. Profiles, Overlays and Auction Market Value Analysis
Return for a moment to the 5 days of profiles, July 26 - Aug 1.
Look at their shapes
Jul 26 is sort of bell shaped
27 is a pretty good bell
28 is a bell sagging like a guy that has drunk too much beer
29 is also skewed to the bottom
Aug 1 is skewed to the top
They all traded within the range 350:4 - 340:4, 10 cents ($500)
What would they look like if combined into a 5 day profile?
FIVE DAY COMPOSITE July 26 - August 1
VOL DETAIL HITS 1=NEAR, 2=NEXT BK,...
3504 4 1 3
3500 5 1 3
3494 13 2 33
3490 27 4 1333
3484 41 6 133333
3480 44 10 1123333333
3474 59 13 1111123333335
3470 71 12 111111233335
3464 52 10 1111123355
3460 46 9 111112555
3454 49 10 1111224555
3450 50 12 111122244555
3444 73 16 1111222222444455
3440 95 20 11122222224444444555
3434 74 21 112222224444444455555
3430 55 12 112244455555
3424 47 9 112445555
3420 26 7 1245555
3414 14 3 155
3410 9 3 155
3404 3 1 5
The picture is of a congested market. Not a beautiful bell, but well clustered
Now, do the same for the five days, Jul 19 - 25
Look at their shapes
Jul 19 is a down day ending near the lows (K period)
20 is also a down day ending near the lows, somewhat of a bell, skewed to the bottom
21 another down day, narrowing range, skewed to the bottom
22 a slilghtly up day, best bell shape so far
25 is another down day, skewed slightly to the bottom, narrow range
They all traded within the range 364:0 - 338:0, 26 cents ($1300)
What would they look like if combined into a 5 day profile?
VOL DETAIL VOL HITS 1=NEAR, 2=NEXT BK,...
3640 4 1 5
3634 2 1 5
3630 2 1 5
3624 6 1 5
3620 10 1 5
3614 7 1 5
3610 7 1 5
3604 10 1 5
3600 18 2 55
3594 22 2 55
3590 19 3 555
3584 9 3 555
3580 4 2 55
3574 3 1 5
3570 8 2 55
3564 12 3 555
3560 17 3 555
3554 18 3 555
3550 8 3 555
3544 16 3 555
3540 21 5 55555
3534 18 4 5555
3530 23 4 5555
3524 23 4 5555
3520 21 4 4555
3514 24 4 4455
3510 27 3 445
3504 25 3 445
3500 25 3 445
3494 16 4 4445
3490 9 3 444
3484 14 4 4444
3480 12 5 44444
3474 24 7 4444444
3470 32 7 4444444
3464 49 9 224444444
3460 58 8 22444444
3454 38 8 22244444
3450 34 6 222244
3446 19 5 22222
3444 37 6 222223
3440 23 6 222223
3434 13 4 2223
3430 33 6 222233
3424 27 7 2222333
3420 33 8 12233333
3414 53 12 111233333333
3410 78 12 111233333333
3404 59 13 1111123333333
3400 67 9 111113333
3394 43 9 111111333
3390 41 6 111111
3384 27 6 111111
3380 5 2 11
An Overlay or combined 5 days of data, looks a lot like the profiles it came
from. All strung out and very little bell shaping.
Conclusion:
1. A lot of profiles are not bell shaped.
2. Profiles in balanced, congesting markets are more bell shaped than those in directional markets
Strategy for Traders:
1. If you are a responsive trader (trading in a congestion) you want to be in
a balanced, congesting market. You fade tops, buy bottoms
2. If you are a responsive trader (trading congestion) and you are in a
directional market, you must also trade directionally (e.g. only longs
in an up market).
3. If you are a directional trader, you want to avoid congesting markets
enter on breakouts
exit on congestion
How can you tell the local (near term) directionality?
1. Keep track of your markets (value) on a day to day basis
2. Use value on several time frames for supports and resistances.
This is a set-up you should use every day for every market you trade.
We will demonstrate it on live markets
How you can find value without calculating a Value Area
Go back to the two sets of profiles
Which set has mostly bell shaped curves
Which set is mostly in balance
which set do you think is reflecting a market defined value
Example of a value set-up
A customer called on May 18, asking about the DJ Index market for that day
This is an elaboration of our discussion
To trade the DJ Index market on May 18, 2005, do a set-up as of the close of May 17
Meta_Profile and Overlay for Day Trading DJ 050518
A backward look at the initial breakout on May 17.
Meta-Profile/Overlay Set-up for Day Trading DJ 050517
Part 3. Auction Market Value and Trading
Current day: futures to be chosen and tracked (e.g., emini, T-bond, DJ, etc.)
Part 4. What is on the CISCO Website
Your job is to find the start of a directional move and to exit the trade when congestion becomes apparent.
or to find a congesting market and trade between the limits (support/resistance)
CISCO's job is twofold:
Teach you how to recognize the start and stop of directional moves (market condition)
Provide you the data on which to make those decisions
Trading is a profession. You cannot learn it overnight. Most new traders go broke before they crack the code
You must be on the right track. Most canned software will not do the trick. You must learn and think.
Markets are complex, self regulating and driven by feedback
Market Profile and Meta-Profile decodes the feedback
Market Profile is for markets with volume reported at price, Meta-Profile works for all markets with ticks
CISCO research is available free. Use it! Learn how markets are structured. Learn the basics.
Markets run and pause. This is most easily seen with CMaPS, the Meta-Profile. It is free on Saturdays. Game it!
Traders think there is a magic model. There is not. There is no secret, although understanding markets
remains a secret to most.
CISCO data is value based. Value is much, much less volatile than price. Whatever technique you use, know value!
CISCO courses introduce you to 'value think'. It is the right path and gets you started properly.
Each data service has an associated 'background' session. Again, these sessions are free. There is a lot to learn.
Part 5. Exceptional Cases
Meta_Profile and Overlay for Day Trading DJ 050518
This is a case of 'chasing a market that is already directional', normally a no - no
Meta-Profile/Overlay Trading the London Blast
The market panics when something unexpected like the London Subway bombing occurs
Inside the panic, if you can keep your head while others...... you may profit big.
Meta-Profile/Pattern_DayTrading_UU050722.html
If you understand value, there are often late-in-the-day opportunities, that just pop up.