CISCO Futures
See: CISCO Reference Links
History: Managing Customer Trading Accounts
CISCO started in 1969 trading stocks on a short time frame and shortly switched
to futures because of the ease of going short. We put together a computer app for
trading and
subsequently developed a trading model, a variation of the Keltner moving average
crossover methodology, which we optimized (and reoptimized ad nauseum) to keep in
tune with market changes. We used this model from December 1972 to August
1987 to manage customer's individual accounts. Drawdowns are a problem with this
methodology and ultimately we shut it down for that reason. From the start in
1972 to the end in 1987 the average return to the customer was over 55 percent
per year.
Value: Market Profile and Beyond
With the advent of CBOT Market Profile in 1985, CISCO turned to value
analysis (see research postings below and at References link on
CISCO main page). Our trading model badly needed help in the day time frame.
We quantified much of the Profile analyses, created
methodology for evaluating profiles, invented the Meta-Profile for non
CBOT markets, invented the Overlay Demand Curve to identify value over
multi-day time spans, quantified the use of reference points, etc., etc.
Unfortunately, this profile research did not develop quickly enough to
save our trading model, which was shut down in August of 1987.
Short Course SC2: Release Date August 31, 2010
The General Picture: Auctions
1-303-306-1521 1-800 800 7227 Fax 1-303-306-1598
Internet http//www.cisco-futures.com
Email dljones@cisco-futures.com
Short Course: Release Date August 31, 2010
Short Course Outline, Day & Swing Trading, Eight Months
July 23, 2010 (c)
Text: Value Based Power Trading, Jones, 1993, Probus
(Browser Access at the CISCO Sitemap)
CISCO has been in the forefront of futures research since 1973 when we
disproved the efficient market theory. This legitimized
potentially profitable market analysis. About 10 years ago we developed a
'Short Course' for training would-be traders. Since then markets have
changed (automated clearing and much else) and we have made so
many studies and uncovered so much about market structure that an update
was called for. When we got into it we found that an almost complete rewrite was needed.
So this is it. The new course is nearly twice as long and the thrust is
much more oriented toward practice, to doing. Standard Profile/Overlay
leans to trading only balanced markets. Now, with the Pause Alert concept
a day trader can trade most any type market, balanced or not.
We gained a number of lessons from this experience.
The most important
concerned risk. We found that you should do your best to figure your maximum
portfolio risk from experience and back testing, and then double it.
Why double? That is your ignorance factor. No matter how carefully you measure and
calculate your risk there are unknowns that can pop up in a complex situation
that will blindside you. Doubling worked for us.
In our worst year we ended down 30%. If we had not been
conservative about risk, that year all of our customers would have hit
the -50% termination point. Another time, in the first six weeks of the new
year (1976), 19 of our first 20 trades were losers. That generated a strong drawdown.
It also generated serious questions about the model (from our customers). A run like this is
highly unlikely, but still quite possible within the context of an average of two
out of three trades being losers.
Our next most important finding proved the value of diversification.
Our big winners sometimes came out of
nowhere. Our portfolio contained all the tradeable futures, about a dozen at
the beginning in 1972, double that by 1987. One was sugar, which for years had
fluctuated around 8 cents per pound. To everyone's surprise, sugar
started moving, 9 cents, 10 cents,... Each 1 cent was $1,000. We got in
around 10 or 11 cents. The move ultimately topped out at 45 cents and we exited
at about 40 cents. Later we found that the Eastern European sugar beet
crop failed because of excessive rain at harvest. The USSR was in charge
and no word of the failed harvest came out until well after harvest and the USSR
had purchased their needed sugar.
We would have never made that trade if we had not carried old staid, rarely traded sugar in
our portfolio. There were a number of these 'windfall' trades that buttressed
our overall track record.
Another lesson is to "stick to your guns". Do your analysis, figure your risk, do
your trade setup. At the point of entry you have commited to your risk. To a mature
trader, this risk money is gone. It is like a bet made at a poker table. Your risk is
out there in the pot. You have made your bet. Subsequent news, chat in a trading room
or information from most
any other source should not get you to change the plan. You set the risk with your best
information and analysis. Why would you change on a whim?
In fact our model used moving averages which assume a periodicity
in a market (smooth with a, say, fourteen day period to eliminate the
dominant cycle). Whatever smoothing period one uses, there is no such
periodicity in the overall market. So smoothing introduces error rather
than simplifying the data. In retrospect, this was why our trading model
required so much optimization.
Since most indicators involve smoothing of
some sort, most indicators fail. The reason is that the calculation
starts with valid market generated data, introduces extraneous, faulty
reasoning (a cycle) and ends up with adulterated, invalid data. Most traders know that
indicators do not work. Now you know why.
A list of some of CISCO's profile research is in the link below. More
extensive coverage is in the Reference pages.
A Brief List of CISCO's Profile Research
These studies have grown our knowledge of markets, particularly as they
relate to generating data for analysis and trading purposes. The
fact is that individually each study addresses a problem or a part of
a problem. It is the piecing together into the coherent whole that is
the thrust of Short Course.
Short Course is developed for both the advanced auction market
day-trader and the near beginner (the beginner has to work harder
to understand the profile approach, as in the link below).
Any student entering Short Course
is expected to have some familiarity with
Market Profiles in general; to understand 'point of control' and 'value area'.
The link below is a good refresher.
Market/Meta Profiles Background
An auction market is a place where buyers and sellers set the price of a
product via a bid/ask process (open outcry or automated trade matching).
Such a market is driven by a difference of opinion
between buyers and sellers. These opinions change with time, sometimes
quite a lot very fast. Many of these opinions are based on hope, guesses,
mis-reading charts, bad technical analysis, news, etc. The upshot of the
market process is that there are many intra-day long runs. These are there;
they are easily seen on a CISCO profile display that also shows 1/2
hour bars (CMaPS). These opportunities occur in the "Minor Auction"
(Lesson 3) and often start from a 'Tipping Point' (Lesson 4).
Taking advantage of market opportunities is the basis of all successful trading
models. Some models take a graphical approach, pattern recognition.
Others calculate indicators based on market periodicity. Most new
traders are sold one or both of these methods and the vast majority of new
traders lose. This is a cruel hoax since pattern recognition takes many
years to master (if at all) and indicators are based on a methodology that is alien
to the way markets are organized. So far as we at CISCO know, value based
analysis is the only valid approach to market understanding. In the futures
trade a number of groups use profiles for value on a single-day basis as in the CBOT
Market Profile manual (1985, 1991) but few, if any use the multi-day analysis
developed by CISCO.
Market Analysis: Finding Value, Reference Points
As a market is driven and reacts to it's environment; it leaves tracks. Ticks, time
and price movement are the data. The shape of the movements; runs, pauses, heavy
action, light action and so on were cataloged by Steidlmayer (CBOT 1985) as
"Reference Points". A day's price-time data was put into a 'Market Profile'
display. As a floor trader Steidlmayer was interested primarily in the current day
and many on the web follow that approach. However, a market condition of balance
requires multiple-days of data to confirm balances and/or day to day continuity.
Market/Meta Profiles Background
To generate reference points:
Take a Profile TPO data set with the assumption that it has a statistically 'Normal'
distribution (a bell shape); then a number of reference points can be derived: e.g.
the "initial balance" (first hour of trading), "point of control" (high trading
center of the day), the Value Area (central 70% of trading),
"tails" (high and low prices beyond which there is no more
trading) and many more. But remember: it has to be a Normal distribution or the Value
Area is incorrect.
The CBOT
Market Profile manual (1985, 1991) does not make this distinction.
These reference points can be used to reveal/understand that market, that day. And
the CISCO methodology does just that. The case of non-Normal distributions are discussed
in Lesson 5 on Value Analytics.
There is another complication, an important one.
Markets are Complex
Auction market activity creates a 'Complex Environment'. What does this mean and how
does it affect you, the trader? Complex means that if you measure a reference point
like the price movement one day and relate this to another reference point such as
trade facilitation; an identical move the next day will probably not mean
the same thing. The relationships between reference points are not linear.
There is feedback between all the reference points which creates the non-linearities.
Consequently, analysis of market behavior cannot be safely done by looking
at individual reference points by themselves. Obviously, somehow you must
find a way to use reference points in combinations. This is addressed later
in the Value Analytics lesson, Month 5.
Where does a trader start? CISCO's answer: Learn the Business! (Short Course is a good start):
1. Learn how markets work, their flow: (balance to run to balance to run, etc.) (Short Course);
2. Learn where to find market generated data (MGD): (CISCO website, Short Course) ;
3. Learn how to use MGD to gain information about the market (Short Course);
4. And finally, combine the information gained into trade setups (Student).
These four steps
embody a great deal of learning; a lot of effort on the student's part.
However this is effectively the same
path we all follow when we enter a new professional level job.
An advantage CISCO Short Course has over all other training in this field is that Short Course is based
on knowledge gained from years of profile research and publication of that research (it gets vetted).
Nothing at all like CISCO Short Course is offered in any institution
of higher learning or anywhere in the futures industry.
With very rare exceptions, the training offered within the futures industry is the
same tired old screeds on chart pattern recognition and/or calculating indicators.
Most Colleges and Business Schools are still in the dark ages of
market analysis and believe in the efficient market theory, a theory we at
CISCO disproved back in 1973 (Jones, Commodities
Magazine, Feb. 1973). Also,
universities are not too eager to jump into complex situations
(like markets) where there are many variables and feedback between
variables exists. It is hard to find a PhD thesis in there.
Short Course is eight months:
Month 1: An introduction to Auction Markets
within the framework of a complex environment.
Auction Market Value:
Three basic CISCO tools can take you through elementary trade set-up.
These three tools are:
Tool # 1.1
Regular Bracket Screen: End of Day Balances (5, 10, 15 and 20 Days).
This is the starting data set for tomorrow's trade setups.
Tool # 1.2
Visual Graphic II: 4 time frames (5, 10, 15, 20) Balance Graphic + Reference Points.
Gives more detailed information for trade setups.
Tool # 1.3
Meta-Profile CMaPS: Current Profile, Bars, Pause Alert, Reference Points.
Intra-day information for trade setup management.
Your first trade set-ups will be built in Lesson 1.
For a view of Profile based trading,
visit the link below. If you are at all weak in your Profile knowledge, the
link merits some serious study.
Introduction to Profile Day trading
Month 2: The Major Auction: A Multi-day Market Condition
The three Tools of Month 1 are used for generating setups this month, but the major
thrust is learning about the market's condition.
Condition governs trade selection and gives a first estimate of risk.
The optimum condition is balance (say 5 day). No market is in balance every day.
An un-balanced market may be traded with the Pause Alert of the Profile (CMaPS).
An un-balanced market may be traded with the short term methods of Month 4. (DTE).
Tool # 2.1
A new Tool: 5 Days of Profiles on a Common Price Strip is used to
compare day-to-day profiles; to validate trade setups.
Market Profile/Meta-Profile & Market Condition
Tool # 2.2
A new Tool: Overlays (2-25) Days, investigates condition on varied Overlay timeframes.
Month 3: The Minor Auction: A Current Day Market Structure
Minor Auction is the Current Day Timeframe, as it develops.
Minor Auction is a subset of (occurs within) the Major Auction.
All Trading activity takes place during the Minor Auction.
Meta-Profile is used for current, intra-day market analysis.
CMaPS Pause Alert shows Tipping Points in the Minor Auction.
Tool # 3.1
A new Tool:: Run-Pause Congestion, identifies intra-day congestion periods.
Tool # 3.2
A new Tool:: Intra-Day Meta-Profile plus Overlay (5 Day) Data
Shows clustering, yesterday and today.
Tool # 3.3
A new Tool:: Advice Engine Search/Potential
Provides a history of the Trade Potential for a chosen Delivery
Month 4, The CISCO Day Trading Engine: Intra-Day Trading
The market's run-pause nature creates 'Tipping Points'.
There are many Tipping Points in a day (all markets have them).
Tipping Points identify turning points.
Reference points (Value Analytics (Month 5), can predict market direction
CISCO's directional prediction is about 80% valid
Tipping Point + Preferred Direction = Trading Opportunity
Time frame range: few minutes to 30 minutes
Tool # 4.1
A new Tool: DTE Single: Market Tipping Point
Tool # 4.2
A new Tool: DTE Triple: Tracks 3 Deliverys at once: ==> Arbitrage
Tool # 4.3
A new Tool: DTE History: Permits lookback within a day
Month 5:, Value Analytics: Reference Points for Guidance
Period Covered: Approx. Old Pit Open (Heavy Volume Start) to 15:15
Number of Reference Points ~ 30
Utilization of Reference Points to identify market continuation
Tool # 5.1
A new Tool:: Value Analytics EOD Report
Utilization of Reference Points
Value Analytics calculates end-of-day reference points for the time frame
usually of the old pit open to the standard close (15:15). This period includes
the bulk of trades for the day. Typically, the old pit open time is the
start of the day's heavier volume. The one reference point that is most
affected by an arbitrary start time (for a 24 hour market) is the Initial
Balance which is pegged to the first hour of the market. In our studies
this decision has not posed a problem.
A typical trader will list out the daily report (Table) for the delivery (s) of
of interest. The three columns of a VA Report list each of the last three days of reference
points. Most of the entries will be either larger or smaller than the previous
day. These are directional reference points. A few are activity related and
are marked with a capital A.
Balance (Upper & Lower Limits)
Price (Hi, LO)
Price (First, Last)
Number of Distributions
Number of Price lines
A TPOs Total
Number of Ticks
A Trade Facilitation Factor
A Volatility
HI/LO Percent of High
Initial Balance Price (High, Low)
Initial Balance Location (High, Low)
Initial Balance Range
A Initial Balance Range % of Day
Initial Balance TPO Total
Initial Balance TPOs Above/Below
Meta-Profile Value Area Price (High, Low)
Meta-Profile Price Location Value Area (High, Low)
A Value Area Range
Value Area Point of Control
Value Area TPOs Upper
Value Area TPOs Lower
Tail Upper Number Prices
Tail Lower Number Prices
Tail Upper Comment (complete or not)
Tail Lower Comment (complete or not)
Range Extension Up
Range Extension Down
Attempted Direction Up/Down
Attempted Direction Rotation Factor
Why do we bother to list this set of reference points?
A look at this set should bring home to you that a market generates a lot of information. Value
Analytics calculates the reference points for the market(s) of your choosing; so you
do not have to make them yourself. But you surely must understand them.
The typical profile trader is often satisfied with Point of Control (POC) and Value Area (VA),
a woefully inadequate set for market analysis.
We know that if the market deviates a lot from the Normal bell shape that Value Area
can be quite wrong. We know that non-bell profiles are not unusual.
Trading on bad information is worse than throwing darts.
This list shows that there is a lot of reference point information. The
more information about market condition(s) you have, the larger your edge.
If your analysis depends on a non-representative profile POC and VA,
your analysis may give you entirely wrong numbers to trade.
But even in
poorly developed profiles many reference points are still valid; e.g. number of price
lines, high and low price, TPO counts, trade facilitation, tails and so on.
If you are dealing with a complex market that you must analyze (say you have a position on),
then it is imperative that you use all the reference points you can.
Month 6: Trade Selection: Start of Trade Management
Make the trade setup. Follow the link below.
Setups for Daily Trades
Introduction to Modeling: Learn to set trading parameters.
Developing a Trading Model
Reuse of Tool 2-25 Day Overlays
Month 7: Trade Management as Value Changes
Recognition of transition from a balance to a trend or trend to balance
1. Reuse: CMaPS meta-Profile with Pause Alert (30 min basis)
2. Reuse: The Run-Pause Congestion tool (time frame set by market)
Find major changes throughout the day
3. Reuse: Intra-Day Meta-Profile + Overlay (time frame set by market)
Find major changes throughout the day
4. Reuse: Day Trading Engine (Time frame from 15 min to 5 sec)
Monitor Tipping Points and breakout direction
Tool # 7.1 DTE Price - Time Array
Reuse of 2-25 Day Overlays
Month 8: A Speed Review of Short Course.
The Short Course combines lessons and paper trading in real time. Data
is from a real-time (internet delivery) ticker.
Daily Trade Setup SC2 Procedure, Prep for Tomorrow
Daily Trade Setup SC2 Procedure
Weekly conferences (via email) with the course leader (up to 5 questions) are a
part of this correspondence course.
Additional conference/mentoring time can be arranged at extra cost.
Cost: $800 for the eight months of the course.
Course includes Programs and Data. There is a $5 monthly Meta-Profile license fee.
After completion of the course, the student can sign up for the data/tools desired at a
substantial discount.
A typical post-course user pays about $150/mo for data + tools.