Market Profile/Meta-Profile History 1985 -2004
Market Profile in commodity futures is a trademark of the Chicago Board
of Trade (CBOT) (1984) that refers to
a specific data structure derived from the CBOT Liquidity Data Bank (LDB).
A Market Profile is a price-time display of cleared
price at time and a value (value area) calculated from cleared
volume at
price. This methodology can be called LDB - Volume since the data is
contained in an LDB report and volume at price is used to calculate a
'value area' comprised of seventy percent of the day's volume centered
at the price at maximum volume. The LDB - Volume Market Profile was
initially calculated at the end of the day. Now it is available within
a day at fifteen minute intervals. The LDB - Volume Market Profile is
limited to futures covered by LDB data, i.e. the CBOT.
November 18, 2004
Copyright CISCO 2004. All rights reserved.
First published in 1985 and updated in 1991, in the CBOT Market Profile manual
the phrase "Market Profile" has become, over time, a somewhat generic name to
describe auction market analyses on a variety of markets outside of CBOT (e.g.
Steidlmayer on Markets, Vol II, p 84, 93). Quote services now offer "Market
Profile" analyses on all futures. Also, a number of trader websites sell
value area data identified as coming from the Market Profile. None of
these are possibly using LDB data for analyses on markets such as
equities, crude oil, sugar, etc., because there is no LDB data available
for any market except the CBOT.
The methodology used to create these 'off CBOT' futures
is a technique that utilizes quoter data (ticks) in place
of the cleared data in the LDB. This technology is the
Tick - TPO/TPT, or Meta-Profile method, where quoter ticks are used
to find trading times (TPOs, or more properly, TPTs) and the TPOs/TPTs
become a surrogate for the volume used in the LDB - Volume format. This
method was
published by D.L. Jones in 1987 (Determining the TPO Value Area, The Alumni
Letter, Market Logic School, Vol 1, #3, April 13, 1987 and
Estimating the Market Profile Value Area for
Intraday Trading, S&C Sep. 1987; reprints available from S&C; the methodology
(computer program) is registered with the US Copyright Office).
The Tick - TPO/TPT method was developed because of
the obvious limitations of the CBOT Market Profile methodology
(cleared data report required, only CBOT futures covered and non-real time).
Accordingly, the Tick - TPO/TPT method is quite different from the
LDB - Volume method. A part of
the research reported involved comparing the value areas of the two. It was
found that value areas were quite similar for markets in balance.
In the case of value change
within a day, the two methods may diverge. Such divergence has proved to be
a valuable tool for identifying within-the-day movements in a market.
"Tick - TPO" profile methodology
is real time and and can be applied to all markets that produce ticks. When
Tick - TPO/TPT methodology (Meta-Profiles) was published in 1987 it
was contrasted with
"Market Profile" since CBOT LDB data provided a base for comparison.
Market Profile
methodology relied on the proposed bell-shape to find elements such as
range extension, tails
and the five 'characteristic' profile day types. Meta-Profile could do the
same by analogy, but observationally, profiles are most often not bell shaped.
The utility of range extension and day types remains to be demonstrated.
Tails do have the value, as pointed out by
Steidlmayer long ago, of showing that auctions must go too far (overshoot)
to identify value. Tails are evidence for the old Russian proverb: "there are
two fools in every market. One pays too much, one sells too cheap".
Thus, while related to Market Profile, Meta-Profile is another distinct variety
of auction market analysis that
extends the range and breadth of auction market value information to cover all
markets that report tick data and does so in real time.
On the CISCO website, "Market Profile" will occasionally refer to Meta-Profile.
In most of the rest of the futures world, the words
"Market Profile" will nearly always refer to the Tick - TPO/TPT Meta-Profile
process, not
the CBOT LDB - Volume Market Profile. (A recent search on Google
for "TPO Market Profile" turned up 16 entries for the Tick - TPO process and
seven for LDB - Volume: a survey of just "Market Profile" turned up 54 cases of
economic profiles, e.g. the Market Profile of Evanston, Ill. and only six
cases of futures applications, of which 5 were CBOT entries). On the CISCO website
those reports following the CBOT methodology are clearly identified with the
appropriate trademark declarations (e.g. Liquidity Data Bank reports).
Meta-Profile is a registered
copyright of CISCO with publication of articles defining it going back to
1987. Differences between LDB - Volume and Tick - TPO/TPT profiles are
demonstrated below. It should be noted that the Profile part of the LDB
report has deteriorated since a change in reporting by the CBOT in February
2003, particularly in the grains.
Market Profile Problems with New LDB Data
A note of interest: The first publication of the Tick-TPO or Meta-Profile value area was in
the Alumni Letter of the Market Logic School (owned by Steidlmayer and Koy) in
April 1987. When we discussed the concept with them, they adamantly held out that
value could only come from volume, but they published our article anyway. Subsequently,
Steidlmayer is quoted in the CBOT Market Profile Manual (1991), p33: " What Steidlmayer
calls the TPO value area is defined by..."; without attribution. Likewise, Mind Over
Markets. 1990, has a section on TPO Value-Area Calculation, p 333, again without
attribution. One reason for the acceptance of the Meta-Profile is that Market
Profile value could only be found for the CBOT cleared volume data, from the LDB,
about 15 percent of
the world's futures trading. The reason for their non-attribution of the source
of the Meta-Profile value area is unknown.
Currently, it is not clear if anyone is using Market Profile patterns for
trading.
In fact, it appears likely that few traders are even using the volume based
'value area' from Market Profile, either. The
fact is that quote services who offer a 'Market Profile' service are
producing reports for markets that do not release volume at price. It appears
likely that the Meta-Profile is the product the customers receive.
Figure 1 is an LDB report showing trading at price by the
four member classifications. Figure 2 is the Market Profile derived from the
LDB report, a LDB - Volume profile. The value area for the LDB - Volume
is found from the volume in column 2 of figure 2. The LDB - Volume report
requires LDB data, of course, and is limited to exchanges which produce
that data. Since LDB data is not released in real time, LDB - Volume profiles
and value areas are not available in real time either.
Figure 3 is the same delivery as figure 2, with the profile built following
the Tick - TPO/TPT
methodology. The profile is somewhat smoother than Figure 2 due to the
continity of the TPO/TPT sets for each letter. The value area is calculated from
TPO/TPT counts, replacing the volume used in Figure 2. The TPO/TPT value area is
somewhat different from the volume value area. This difference is a natural
result of the differing methodologies; at times such differences may be large.
Tick - TPO/TPT methodology is applicable to all auction markets that
generate ticks. By the same token, the Tick - TPO/TPT method is available in
real time.
Figure 4 is the half-hour tick bars for figure 3. The tick bars
match figure 3 exactly, as they should. Figure 2 does not match so well.
Since Figure 2 is a result of the clearing process, there can be differences
from outtrades, wrongly reported trading times from floor traders and the like.
Also, CBOT does not provide continuity between letters, listing TPOs only
at prices traded, e.g. at 3222 no K is posted although K period is shown being
traded on both sides of 3222. The lack of continuity can be striking in fast
moving markets, creating an odd looking profile that is hard to analyze.
CBOT VOLUME REPORT (LDB)*
TRADING DATE: 09 09 04
CONTRACT: DEC 04 WHEAT (CBOT) DAY
TRADING BEGINS 0930 (CST);CLOSES 1315;TPO SYMBOLS ARE DEFGHIJK
FIRST PERIOD IS 30 MINS;SUBSEQUENT PERIODS ARE ALL 30 MINS
PRICE VOLUME %VOL %CTI1 %CTI2 %CTI3 %CTI4 BRACKETS(*)
3234 208 0.9 50.0 0.0 0.0 50.0 E
3232 48 0.2 50.0 0.0 0.0 50.0 E
3230 902 3.9 51.9 0.0 5.4 42.7 DEF
3226 1330 5.7 49.4 0.3 9.5 40.8 DEF
3224 2480 10.6 47.5 0.0 4.9 47.6 DEFGIK
3222 638 2.7 54.4 1.6 5.2 38.9 DEFI
3220 3684 15.7 44.2 0.6 5.6 49.5 DEFIJK
3216 1748 7.5 56.7 0.0 2.5 40.8 DEFGHIJK
3214 2490 10.6 45.6 0.6 5.3 48.6 DFGHIJK
3212 820 3.5 50.7 0.0 8.5 40.7 DFGHIJK
3210 1746 7.5 48.3 1.1 5.0 45.6 DFGHIJK
3206 1052 4.5 34.5 0.0 3.3 62.2 DFGHIJK
3204 2524 10.8 41.8 1.2 4.5 52.5 DEFGHJK
3202 1330 5.7 48.6 0.2 5.0 46.2 DEFGHJK
3200 1324 5.7 47.4 0.0 5.4 47.2 DGHJK
3196 398 1.7 51.0 0.3 4.5 44.2 GHJK
3194 394 1.7 54.8 0.0 4.1 41.1 DGHJK
3192 278 1.2 50.4 3.6 10.4 35.6 FGH
3190 10 0.0 70.0 0.0 0.0 30.0 G
%CTI1 %CTI2 %CTI3 %CTI4
VOLUME FOR DEC 04 WHEAT (CBOT) DAY 23404 47.2 0.5 5.2 47.1
VOLUME FOR ALL WHEAT (CBOT) DAY 25458 48.5 0.4 5.1 46.0
70% VOLUME SUMMARY
PRICE VOLUME %VOL %CTI1 %CTI2 %CTI3 %CTI4 BRACKETS
3224 17182 73.4 46.3 0.6 4.9 48.2 DEFGHIJK
3204
*LIQUIDITY DATA BANK is a registered trademark of the Board of Trade of
the City of Chicago 1984. ALL RIGHTS RESERVED.
Figure 1. The Liquidity Data report for Wheat, December 2004 delivery for
trading on September 9, 2004.
Market Profile* from CBOT LDB data of figure 1.
Price Volume BRACKETS
3234 208 E
3232 48 E
3230 902 DEF
3226 1330 DEF
3224 2480 DEFGIK
3222 638 DEFI
3220 3684 DEFIJK High Volume Price (Point of Control)
3216 1748 DEFGHIJK
3214 2490 DFGHIJK
3212 820 DFGHIJK
3210 1746 DFGHIJK
3206 1052 DFGHIJK
3204 2524 DEFGHJK
3202 1330 DEFGHJK
3200 1324 DGHJK
3196 398 GHJK
3194 394 DGHJK
3192 278 FGH
3190 10 G
70% VOLUME SUMMARY
PRICE VOLUME %VOL %CTI1 %CTI2 %CTI3 %CTI4 BRACKETS
3224 17182 73.4 46.3 0.6 4.9 48.2 DEFGHIJK
3204
*The MARKET PROFILE is a registered trademark of the Board of Trade of
the City of Chicago 1984. ALL RIGHTS RESERVED.
Figure 2. Market Profile and volume value area with the LDB - Volume method
for Wheat, December 2004 delivery, trading on September 9, 2004.
Tick - TPO/TPT Meta-PROFILE REPORT FOR 09 09 04
WHEAT (CBOT) DAY DEC 04
Price TPO/TPT
3234 E
3232 E
3230 DE
3226 DEF
3224 DEFI
3222 DEFI
3220 DEFIJK
3216 DFHIJK
3214 DFHIJK
3212 DFHIJK Center (Point of Control)
3210 DFGHJK
3206 DFGHJK
3204 DGHJK
3202 DGHJK
3200 DGHJK
3196 GHJ
3194 GHJ
3192 G
3190 G
TPO/TPT Analysis
VALUE AREA FROM TPO/TPT
UPPER 3220
LOWER 3200
TPOS UPPER 31
TPOS LOWER 33
TPO TOTAL 74
TICKS (STEPS) 19
TF FACTOR 3.9
Figure 3. Meta-Profile and TPO/TPT volume value area with the Tick - TPO/TPT
method for Wheat, December 2004 delivery, trading on September 9, 2004.
W DEL-MO/YR 12 04 MO/DY/YR 09 09 04
OPEN,CLOSE 3210 3206
HIGH,LOW 3234 3190
FRST HI LO LAST TIK PD
9:30: 0 3210 3230 3200 3220 114 D
10: 0: 0 3222 3234 3220 3224 64 E
10:30: 0 3226 3226 3206 3206 40 F
11: 0: 0 3210 3210 3190 3192 63 G
11:30: 0 3194 3216 3194 3214 31 H
12: 0: 0 3220 3224 3212 3214 29 I
12:30: 0 3216 3220 3194 3202 43 J
13: 0: 0 3210 3220 3200 3202 51 K
Figure 4. Tick data half hour bars for Wheat, December 2004 delivery,
trading on September 9, 2004.
Market Profiles/Meta-Profiles Background
Auction Market Value Theory