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Trading Game Tutorial: Getting Started
Copyright CISCO 2007

The Trading Game
Your goal is to understand profiles at a depth adequate to trade with a profile oriented database like Visual Analytics. When you are acting on a profile variable, say value area, it is critical that you know that that variable applies to the situation in which you are using it. If you do not know this, and most apparently do not, you can find yourself depending on false information. A coin flip would be better.

The data you need is in the Value Analytics Report Table. Section 1. provides you market condition: balance or imbalance on the 5 day and 10 day Overlays. The 2 and 3 day listings are merely estimates that you may confirm visually from the data. Balances are the superstructure, the framework of the market: upper and lower limits, the middle, octant and quadrant prices. If the market is in balance you know quite a lot about it. It is tradeable.

Section 2. carries the specific flow information, the internals that show the short term (day) bias and directionality of the market. Section 1 and Section 2 taken together give the full picture, the framework and what is going on inside the framework. You can see where the market is and how it got there over the last three days. Since you know the flow direction, you have an educated guess as to where the market is going in the current day. This can be verified within the game.

Having all the data from before a trade and then what the market actually did puts you in the position of comparing what you did, your pre-market strategy, against the best you possibly could have done, i.e. everything the market offered. your score is the percent you made of the ideal, i.e. 91 percent in the example below. The game is to maximize your percentage. Score yourself at 100 on trades where your percentage is 50 or more, a percentage of 40 or more is an 80 score, etc.

Preparing for Tomorrow, Your General View
If the market is in balance you set up to trade it responsively (selling tops, buying bottoms). If it breaks out of balance during the day, you turn to trading it initiatively, going with the trend. Market condition is thus your starting point prior to the opening and your guide within the day. If you are analyzing a non-balancing market, you know much less about the that market and trading is much more risky. You find your market condition information in Section 1. of the Report Table, which comes from Value Analytics (ready about 7 PM).

Section 2. of Report Table examines profile and other variables (like tick count and volatility). You have a three day study for each variable or reference point. This allows you to read the flow (e.g. tick volume is increasing, value area is narrowing, etc.). The Analytics part of Value Analytics is that you have numeric values for each reference point and hence can easily compare day to day.

Outside Profile Information
As you are following the flow of the profile variables in Report Table you may have questions on, say Initial Balance (how is it defined?). You go to the Value Analytics page and click on Lookup Publications. You choose R4, the CBOT Market Profile Manual 1991 and click on it. There on Page 9 you see Initial Balance. Now you go to your copy of CBOT Market Profile Manual 1991 (of course you have a copy, it's free to download). Now you read what the manual has to say. Not satisfied? Go back to Lookup Publications and click on R3, Mind Over Markets. Sure enough, there on page 11 is a discussion of Initial Balance. You can go to your copy of Mind Over Markets and read about it. Follow this procedure and in no time at all you will be reading the markets like an expert.

Back to the Trading Game
You are going to select a date to study (start with a balance). You have access to the Value Analytics history database for all of 2006. A practical question. How do you pick a balancing market to study? Easy, we give you a list as a part of your study data (Overlay History on the main page). The sample below shows three balance periods for emini SP (UU) in 2006. Posted is date, symbol, delivery month, year, Upper Limit, Lower Limit and close. The Lower and Upper limits can be thought of as support and resistance, although they are tied much closer to the market than normal support and resistance. 


     Dte  F  Dl  Yr     ULIM    LLIM     CLO 
    0929 UU  12   6   135000  133250  134550 
    1002 UU  12   6   135000  133800  134050 
    1003 UU  12   6   135000  133750  134325 
                                             
    1010 UU  12   6   136250  135250  136075 
    1011 UU  12   6   136275  135325  135900 
                                             
    1018 UU  12   6   137750  136350  137250 
    1019 UU  12   6   137750  136700  137425 
    1020 UU  12   6   137750  136700  137500
You can see that on Oct 4 (one day after 1003) the market went out of balance, since it is not on the list. Oct 4 is a good day to practice trade because we know what is going to happen (a breakout sometime after the close). In fact it broke out around 10:30 (at 135025, one tick past the limit) and closed at 135825. Would you have traded it? Maybe you would and I wouldn't. Or maybe I would and you wouldn't. But we would both be making our decisions from exactly the same data. Our differences in what we like makes markets and dooms canned models.

Now we use the CMaPS history to view UU Z, Oct 4 in real time. We choose several times of day to track the market as it develops. Around 10:30 we see an upside breakout. We also find the last tick at 15:15. With CMaPSH we can trade the day in any detail we wish, 15 minute timeframes, if desired.

Assuming a long at 135025 and exit at a close of 135825, how would you score this trade? What was the high of the Day? 135900 traded several times late in the day. You could have made 875. Holding to the close (if that is your strategy) would get you 800. So your percentage is 91 for a score of 100 on that trade. Scoring is based on "how did I do versus how could I have done". You will generally find that your scores are best on breakout days, as was this case. But, of course you will not know a breakout day ahead of time in the real world.

We made the above trade on the basis of just the breakout. We peeked. We pre-chose a breakout day. You cannot do that in the real world. So for the same day, let's look at the Value Analytics Report Table for Oct 3, to see what it tells us. That data, as noted, comes from the Value Analytics history. 

Value Analytics Report Table for October 3, 2006

  Value-Analytics Market Condition Report:     Copyright CISCO 2007  
                Value Trading, A Page of Clues
                    UU  06 12  08:30 15:15

                      20060929         20061002         20061003

 1. MARKET CONDITION: Balances...............
 1a. Overlay Limits.........            2 Days           3 Days
Lim3 Upr - Lwr         0       0   134775  133750   134900  133750
#Dist & Clos %R                         1      61        1      55

 1b. Overlay Limits: 5 Days.........
Lim5 Upr - Lwr    135000  133250   135000  133800   135000  133750

 1c. Overlay Limits: 10 Days.........
Lim10 Upr - Lwr   135000  132150   135000  132150   135000  132150

 2. META-PROFILE ANALYSES.....
 2a.General...........
Price: Hi - Lo    134950  134475   134825  133925   134775  133600
Pri: Fst - Lst    134825  134575   134525  134050   133875  134350
# Distributions          1                2                2
# Price Lines           20               37               48
# TPOs - Total         126              146              194
# TICKS               7275             8660            11806
Td Facil Factor       6.30             3.95             4.04
VTY: 30 Min Bar        200              235              321
HI/LO % of High         96               96               96

 2b. Initial Balance...........
IB Pri: Hi - Lo   134950  134600   134600  134350   133950  133600
IB Loc: Hi - Lo       1    15         10    20         34    48
IB Range                15               11               15
IB Rng % of Day         75               29               31
IB TPO Total           115               50               46
IB TPOs Abv/Blo       0    11         31    65        148     0

 2c. Meta-Profile...........
Price VAU - VAL   134850  134650   134825  134175   134775  134125
P-Loc VAU - VAL       5    13          1    27          1    27
VA Range                 9               27               27
VA POC               134725           134325           134500
VA POC TPO-SYM   BCDEFGIJKLMN     J                GIJKLMN
VA TPOs Upper           64               80               65
VA TPOs Lower           48               63              121

 2d. Tails..........
Tail Upper #Pri          1                1                1
Tail Lower #Pri          1                1                1
Tail Up Comment      InCompl          InCompl          InCompl
Tail Dn Comment      InCompl          InCompl          InCompl

 2e. Range Extension.........
Rg Extension Up        0       0   134800  134625   134000  133975
Rg Extension Dn   134575  134500   134450  134375        0       0

 2f. Attempted Direction (Balanced Market).........
AD: POC                 --               DN               DN
AD: Rotn Fac            -6               -3                5
Parsing the Report Table

Section 1. is for market condition, for balances. Line 1c. is the 5 day Overlay, same values as the table above. Should be, they came from the same place. But we do have Overlays from different time frames, so we could have built a staggered entry for breakout. But we can say that this market was pretty solidly balanced at all time frames (2, 3, 5 and 10 days).

Section 2a. is general analyses like volume surrogates (TPO counts), ticks, volatiity and the like. TPOs we see are increasing day by day. What does this mean? How about increasing volume means more traders coming into the market, portending movement. Tick counts agree. What about increasing volatility? It is increasing also, same idea--increasingly unstable. You can go to the Value Analytics page and get a more complete explanation of the Report Table at the 'Explanation' link.

Section 2b. examines the Initial Balance, the first hour or so of the day. We check it for changes. It seems to be decreasing (TPO count in the IB is dropping ==> control leaving the professionals), the range as a percent of the day is down to 31 from 75 (confirmation of loss of control).

Section 2c. looks at meta-profile value. Value is pretty stable, same for Point of control. TPOs Upper is small, arguing for rising price.

Section 2d. Tails: checks for completed auctions at the top and bottom. Both the upper and the lower have a single TPO and are thus not completed. That says movement in either direction is equally probable.

Section 2e. Range Extension. This is trading beyond the Initial Balance. There was range extension above the IB, but not below. This argues for strength on the upside.

Section 2f. Attempted direction is two measures what the market is trying to do. One says up, one says down. They offset, not unusual for a balanced market.

Recap: What do you think you should be ready for for tomorrow?
We know that the market contdition is solidly balance. 1a., 1b., 1c.
2a. argues for change.
2b. argues for change.
2c. argues for rising price
2d. is neutral
2e. shows strength on the upside
2f. is neutral

We must lean toward an upside breakout, if the market indeed breaks out. We now know a good bit about the market in detail. We cannot predict, but we do not need to. We know the balance parameters, the limits. Our lean is empowering to the extent that we will not be surprised at an upside breakout and can modify our strategies to take that into account (maybe multiple contract strategies). This is that 'edge' that Steidlmayer was so fond of.

The Profile/Value Game
Earlier we alluded to getting a 91% score on the breakout trade. The Profile Game is about generating a strategy in the evening, following it the next day and comparing what your strategy brought versus what a perfect (in hindsight) strategy would have made.

Trading auction markets is a game. There is risk, return, odds, bluffing, cheating, strategizing, misdirection, etc. As a 1 or several lot trader you cannot bluff, cheat, or misdirect, but there those who can, and they are part of the market you analyze. So trading by the public individual is a game, usually against big odds. The odds are even worse when you do not know how to analyze the market, as most public traders do not.

You improve your odds by learning the game. It is you against the house, but unlike the horse track, there is no house percentage except, for the relatively small trading costs. You can develop your understanding and compete. This Tutorial is your apprenticeship. You have the data, the original sources for interpreting the variables and access to the computer for real time practice trading. Your challenge is:

1. Learn enough about profile structure to make logical trading decisions
2. Learn the ins and outs of market behavior
3. Learn to think in terms of value, not price
4. Develop the discipline required to trade
5. Be able to rely on your own judgment, not follow others
6. Above all, learn to use the profile reference points properely!

For more detail: Profile Game Tutorial Background

Two examples: on Tutorial Value Analytics page under Resources:
...Profile Game Sample #1: UU Jan 19, 2006
...Profile Game Sample #2: UU Jun 20, 2006