CISCO


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.
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