Errata: Value Based Power Trading
Announcement:
November 1, 2008
Chapters 2 and 3 on the Liquidity Data Bank have become increasingly obsolete over
the last few years with the rise of electronic trading. The commercial traders
were physically visible in the pits and the locals keyed off them. They were only
5 to 15 percent of the volume but they would buy or sell heavily to cap off moves.
In the electronic markets commercials are more like 35% of the volume and just who
these are is in doubt. When CBOT and CME merged, the decision ultimately became
"keep the LDB, but raise the exchange fee to $500/mo". This priced the private
traders out of the market. CISCO no longer updates the LDB database.
Background on the LDB
Originally the LDB was designed to provide market condition (balance or trend or
the transitions between, on a single day basis). CISCO found that one day's data is
inadequate to define condition (see Three Day Rule at References link on CISCO home page).
CISCO went on to discover the Overlay Demand Process, which does give condition for multiple
days. Also, Market Profile Value Area required the LDB, since the Point of COntrol
was the high volume price. CISCO developed the Meta-Profile which substituted TPOs
for volume, making a value area calculation available on all futures (Meta-Profile)
is the de-facto standard--if you buy "Market Profile" from a vendor you are actually
getting Meta-Profile). Much of this story is documented in the CISCO References
pages (link on main page).
For the balance of the book, we are happy to be able to say that it has stood the
test of time. Our development of the Overlay Demand Curve for determining value
is still used daily. Many advances in Auction Market Value Theory have occurred
since 1993 (see References page on our website), but the fundamentals enunciated
in the book remain valid.
To become more up-to-date, start with 'Mission Statement' on CISCO main page.
Training in value based market knowledge applied to trading is found in the
CISCO Long Course (swing trading) and CISCO Short Course (intra-day trading).
Thanks to John DeCorso and Bruce Anderson (Homestudy students) for compiling
these errata for the book: Value Based Power Trading by D.L. Jones
If readers find any more errata please send email to dljones@cisco-futures.com
**As of January 1, 2008 the new CME/CBOT will cease reporting Cti1, 2, 3 and 4 volumes
on the CBOT Liquidity Data Bank. This will affect Chapter 2 (CTI volume analysis)
and Chapter 3 (Public (Cti4) and Commercial (Cti2) Control.
**Note: This change in reporting is not as serious as it may seem. In the market's
march to electronic trading, and the influx of so much public money, the old order
of member control has given way to a freer, more demand based market. In particular,
the commercial control of turning points is pretty much a thing of the past.
Errata 1
========
The problem begins on pg 97 in the 2nd paragraph of "Rotation Index/Quadrant
of Close". The first sentence is:
"Take a market that is open four hours and trades between 220 and 200
throughout the day.
The problem with that range of prices from 220 to 200 is you have actually
21 numbers which don't divide evenly.
Write:
"Take a market that is open four hours and trades between 201 and 220
throughout the day").
Errata 2
=========
The first graphic on pg. 98 is OK except that the text needs
to be changed to reflect the ranges of: Q1-220-216, Q2- 215-211, Q3- 210-206,
Q4- 205-201.
The second graphic is wrong. It could be corrected by
changing the vertical axis to :
Q4 from Q1
Q3 Q2
Q2 Q3
Q1 Q4.
The numbers again need to be adjusted to reflect the new
range of 201- 220, inclusive.
The final graph is OK.
Errata 3
========
The second error is on page 35, the last line. It should read:
(10-day average %ABV=0.5) 1.4 is wrong!
Errata 4
========
The last problem is not an error but misleading. Check out the paragraph
"QUADRANT" on page 36. It says that " quadrant values over 50 percent above
their 10 day averages are deemed significant. For May 22, 31.4 percent of
the total Cti2 volume traded that day wound up in the upper quadrant, with 9
percent in the lower. 31.4 divided by 20.7 shows activity over 1.5 times
normal (150 percent).
The problem I find with this paragraph is that the 50 percent
figure mentioned initially is 50 percent above their 10 day averages which
is 1.5 times normal or 150 percent as indicated below. Yet the 50 percent
and 150 percent figures are presented as being different which they are not.
I would word the paragraph "quadrant values over 50 percent above
their 10 day averages or 1.5 times normal (150 percent) are deemed
significant."
Errata 5
========
Page 149 Chapter 6 Figure 6-1 has an incorrect heading.
The Half-Hour auctions are for May 8th
(and NOT July 22 as shown)
Pages 145 and 146 refer to Figure 6-1
Pages 147, 148 and the lower half of Page 149
DO NOT refer to Figure 6-1
Page 150 Chapter 6 The top half Page 150 labelled "The Trading:"
refers to the discussion on Page 146 for May 8.
It does not refer to the discussion on Page 148
and the bottom half of Page 150 for July 22.
Page 150 Chapter 6 In the middle of Page 150 is the sentence:
"This trading action can be followed on the
half-hour auctions for the day plot of Figure 6-1"
This should read Figure 6-8 and NOT Figure 6-1.
We thank Mike McGehee for finding these errata
Page 100 Chapter 4 Line 14, starting 10329 change responsive long to 10330
Line 17, starting 10327 change responsive long to 10328
Page 109 Chapter 5 Line 13 change Figure 5-21 to Figure 5-22
Page 126 Chapter 5 Line 2 the first 4510 should read 4540
Commercial Capping: Chapter 2
Authors note: The change to electronic markets has drastically affected the
'pit' view of commercial analysis. Electronic commercials are often responsible
for 30 - 35 percent of the volume; about three times that of the pit. This
change may have far-reaching and as yet unknown effects on commercial analysis.
Commercial Capping: Chapter 2, page 25 to 46
3rd paragraph, p 25, "Market Profile can be...."
Change Market Profile to Meta-Profile. CBOT defines a Market Profile as volume
based. Meta-Profiles come from tick data. Other places throughout the text
where Market Profile is used when Meta-Profile is meant should be altered
accordingly.
Page 37 and on, discussion of commercial trader capping should be interpreted
within the following context: Commercials are maybe 5% of the volume, public
is maybe 35%. Commercials will not get in front of the public when it is
driving a market. Rather, commercials wait until the public drive loses
momentum and then swoops in with a cap. The interpretation of a commercial
cap is then as the place where the public ran out of money or conviction.
It is not at a price preset by the commercials. This is a change from the
tenor of the chapter, occasioned by the increasingly dominance of public
trading over member trading. Earlier, the members controlled more money than
the public. Now it is the opposite.
Page xx: In the caption to the figure, line 2, the phrase 'the symbol locates' should be
'the symbol > locates', noted by the sharp eye of Gerald Bryan.
Accumulation/Distribution P 155
I am having a few problems with some of the Accumulation/Distribution
examples in Value-Based Power trading. For example on page 155 you state the
market was balancing in periods A to B, D to F, and H to L. The last period
you quote (B,F,L) are the start of the distributions. Should these NOT be
marked as accumulations?
Response:
Re: Value Based Power Trading, page 155:
Page 155-prep for trading on July 24 should refer to figure 6-11 on page 158.
Between A and B there was a move up, etc. Looks like a typo/error: the description
appears to refer to figure 6-8. That IS confusing.
You wrote:
It looks like you are calculating the start of accumulations as sequences of
half-hour auctions that form within the previous periods range (you allowing
for an error of one tick when calculating these). Is this correct?
Response:
These Accululation/Distributions are historical, describing what happened
yesterday. They are not much help for trading 'today'. Their value is in
demonstrating/teaching the fact that markets run and pause, often several
times per day. ('error of one tick (tpo)' is not a factor--that is merely
our measuring accuracy.)
Looking at figure 6-8 on page 155: Standing back, you see a grouping in
periods y to C, D to H, I to K. L to M might be the start of another, but
there is inadequate data to tell. The structure of the market yesterday
may not help much in today's trading---but your knowledge that you can
expect several run-pause cycles within a day is basic. We do have a tool
to measure congestions (pauses): It is on the Value Analytics page, the
Run-Pause 15 minute and Run-Pause 30 minute programs. These methodologies
are explained at the 'CISCO Run Pause Analysis' link on the Value Analytics
page:
Main Page
Value Analytics
Auction Markets
Run-Pause 15 Min (or 30 Min)
CISCO Run Pause Analysis
You can have a free two week trial, if you wish. Just let me know.
You wrote:
The example on page 133 is also confusing me. The report states that the
market is accumulating for periods F-K. It looks to me like a distribution
down and then a reverse up - that half-hour auctions are not within previous
periods.
Response:
Again, stand back and see groupings y to D and E to J, with a drop in K and
possibly another consolidation starting in L, terminated by the close.
You wrote:
My final question is, do you have any statistical evidence that 5 day
brackets, which are relatively small compared to a larger bracket, form
trends that are much larger?
Response:
No. The nature of the market, as we see it, is Run-Pause. We have been
discussing structure within a day. A longer pause, say 5 days, is a change
in scale but not a change in structure. The run-pause structure is seen
even on time scales such as Elliott Wave, where a run-pause pair may
extend over several years. A Market Unit (completed run-pause pair) can
vary widely (first one might be 4 days; second, thirteen days; third,
eight days; and so on). This is discussed in the Market Unit article on
our References page. The point is, after a consolidation, the ensuing
breakout and run can go on for an arbitrary time. That time is determined
solely by market forces, which, typically, are different in each time
period.
Click here to return to the CISCO home page at http://www.cisco-futures.com
For info: 800-800-7227 or 303-306-1521; Email:dljones@cisco-futures.com
Address: PO Box 396441, Aurora, CO 80014 USA