Saturday, December 29, 2012

Commitment of Traders (COT) Report

The Commitments of Traders is a report issued by the Commodity Futures Trading Commission enumerating the holdings of participants in various futures markets. These futures markets are places to buy or sell, for example, grains, cattle, financial instruments, metals, petroleum, etc., and in the United States are primarily based in Chicago and New York.

The Commodity Futures Trading Commission (CFTC) releases a new report every Friday at 3:30 Eastern Time, and the report reflects the commitments of traders on the prior Tuesday.

The US Commodity Futures and Trading Commission website provides the report data including historical data. The data is machine-readable. Prior to 2009, the report only split the data by "commercial" and "non-commercial" entities. The "commercials" are the users, producers and manufacturers, whereas the "non-commercials" are generally the speculators and traders. However, the split isn't quite as clear cut as that. Since 2009, the CFTC have produced a disaggregated report which contains further split of the data as follows...

Producer/Merchant/Processor/User
A “producer/merchant/processor/user” is an entity that predominantly engages in the production, processing, packing or handling of a physical commodity and uses the futures markets to manage or hedge risks associated with those activities.

Swap Dealer
A “swap dealer” is an entity that deals primarily in swaps for a commodity and uses the futures markets to manage or hedge the risk associated with those swaps transactions. The swap dealer’s counter-parties may be speculative traders, like hedge funds, or traditional commercial clients that are managing risk arising from their dealings in the physical commodity.

Money Manager
A “money manager,” for the purpose of this report, is a registered commodity trading advisor (CTA); a registered commodity pool operator (CPO); or an unregistered fund identified by CFTC. These traders are engaged in managing and conducting organized futures trading on behalf of clients.

Other Reportables
Every other reportable trader that is not placed into one of the other three categories is placed into the “other reportables” category.

There are a number of tools, indicators and websites that allow you to use the COT report for the benefit of your trading.

COTBase is a great site, and has free online charts, and some subscription services providing analysis.

There's also www.commitmentoftraders.com which has some useful information and a subscription service.

For the MarketScope platform there is an indicator on FXCodeBase, however it only provides a split into commercial and non-commercial entities (i.e. old-style report).

Professional gap vs Novice gap

This article is a short and simple explanation of the difference between professional and novice gaps.

Thursday, December 27, 2012

Market Profile performance tips

Market Profile, by its nature, is quite graphically-intensive compared to most other indicators. My Market Profile indicator is no exception, and although I have tried to optimize it as much as possible, it still can be slow on the MarketScope platform.

However, there are a number of things that can really help to improve the performance.

The computational aspects of the indicator are actually not that computationally expensive. The main issue is the graphics. Therefore, anything that will reduce the amount of graphical objects, will improve the chart performance.

1) Use a suitable "Resolution" value

The "Resolution" parameter determines how close together the price "bins" (or TPOs) are. This depends on the instrument and the chart period. For example, for a 30min chart for EUR/USD, a resolution of 2-5 pips is probably ok. For a daily chart of EUR/USD, 2-5 pips will be too small, and it will create many close lines/letters. So, the value should be tuned to give the "right" amount of levels; if the graphics are too close together then the value should be increased; if the graphics are spaced too far apart then the value should be decreased.

Furthermore, please be aware that not all instruments move in integral numbers of pips. Forex use fractional pips, and so the resolution could be something like 2.5 pips. However, CFDs like GER30 move in 1 pip increments, and using a value of 2.5 pips might give strange artefacts.


2) Use a suitable "Number of historic profiles" value

The MarketProfile indicator will generate new profiles, every hour/day/week/month/etc. according to the "Profiling mode" settings. In order to reduce the amount of graphics, the "Number of historic profiles" controls how many profiles are displayed on screen.

Depending on the chart period and size and the "Profiling mode" you might have too many or too few profiles displayed. For instance, when using "Profiling mode" is set to Weekly, you might only need last 4-5 weeks displayed, so the "Number of historic profiles" can be reduced.


3) Use "Coloured TPO" effect sparingly

The "Coloured TPO" colouring effect can colour each TPO letter with a different colour. Whilst this can look very nice, it does increase the number of graphic objects on the chart. When using this colouring effect, you might want to consider reducing the "Number of historic profiles".

Sunday, December 23, 2012

Market Profile / Volume Profile Webinars

Some great webinars on Market Profile / Volume Profile by FuturesTrader71:

These are on BigMikeTrading. I believe you will have to register to BMT forum to see these.
There is some truly excellent material there.

FuturesTrader71 also has additional webinars on his site. He charges a small amount for these (which I believe he donates to charity). The following link is for the whole series, but they can be purchased individuality from his site also.

Webinar Series 1 to 4.1

Saturday, December 22, 2012

Gap closed on FTSE100

Big gap-down today, on the news of failed vote regarding US fiscal cliff. The down-move found support and rallied nicely, all but closing the gap. Gaps do usually close, sometimes quickly, but this one took a day. The origin of the gap might still be a supply level, it will certainly be resistance to further up-move. But, it holiday season is upon us, trading volumes will be thin next week and the following week, so anything could happen. And, hey, you never know the fiscal cliff issue might be solved!


My "Gap Highlighter" indicator detects and highlights significant gaps in the instrument.

Friday, December 21, 2012

Composite Profile and Market Profile Settings

I had some questions about the settings for the Composite Profile and Market Profile indicators.

One of the most useful features of the Composite Profile is the ability to display the High Value Nodes (HVNs) and Low Value Nodes (LVNs). These are the prices of locally high/low trading activity. These can act as support/resistance when price revisits the area. They are not guaranteed to causes a reversal in price, but they nearly always cause a reaction - this can be good scalping territory.

The HVN/LVN lines need to be enabled on the Composite Profile indicator. Another important parameter is  the "HVN/LVN detection window". This "window" is used to determine whether a price is a local high or low. There's no right or wrong value for this, and ultimately it depends on the chart period and profile resolution. Generally smaller values can lead to too many less significant HVN/LVN lines. So, the value needs a little "tuning" to get right for the chart and indicator settings.


Here, the "HVN/LVN detection window" was set to 3, which can cause too many insignificant lines to be drawn.


Another question was about the Point Of Control (POC) lines on the Market Profile. Most display options will colour the POC's TPOs. However, a line can also be drawn when the "POC style" option is set to "Line".

The Naked POCs (NPOCs) can also be drawn as lines. There are 2 modes: "Fresh" and "Historic". When set to "Fresh" only currently naked POCs are drawn. When set to "Historic" all the old NPOCs are also drawn.

US cancels vote on Boehner's fiscal cliff

Big move down on S&P on this news and gaps-down on European stock indices. Here's the DAX, with 60 pip gap down on the open. It is currently consolidating. Gaps normally fill, but in this case, I think it is worth waiting to see what happens.


Here's the "Multi-Compare" chart. Risk assets all took a tumble. Gold is interesting, it's made a double bottom (actually with a slightly higher 2nd bottom) and could break through resistance.

Thursday, December 20, 2012

DAX open drive down to demand zone

Nice move on the DAX today. It started with gap-down, which only partially filled. Further selling pressure pushed it down to test the POC from Tuesday, which was also showing very strong demand level.

This pull-back to demand is classic "Sam Seiden" style, when price first revisited this demand level the demand was still there and there was a rally.

Tuesday, December 18, 2012

Multi-Compare Indicator released

I released the Multi-Compare Indicator. It is now available from the products page.

Not the day to be short!

Here's a collection of risk-related assets (stock indices and oil) vs USDOLLAR and gold. Actually, risk assets have been positive, but today's move was crazy ... and probably not sustainable. Watch out for tomorrow.


Just a couple of minutes later and gold takes a nose dive!

Wow! That was some rally on the S&P

I really don't know what drives the US markets any more, they plunge and rally on the smallest of pushes.

Monday, December 17, 2012

Weekend GAP closed on SP500 overnight trading

The following chart shows the weekend gap-up on S&P500 (SPX500 CFD). The gap was approx 60 pips, which slowly closed during Asian / European trading of the ETF.


Friday, December 14, 2012

Another opening-gap trade on FTSE100

I made 3 trades on the opening gap this week, 100% win so far. Not statistically significant I know, but still nice. With this trade I made 15 pips, with 5 pips risk (3:1 R:R).

Thursday, December 13, 2012

TradersAudio.com (Ben Lichtenstein)

Ben runs TradersAudio and hosts a pit "squwak box" audio feed from NYSE. I think he covers the S&P mainly. Day Trading Radio usually also features him. Some of the terminology confuses me, but I found this video from Ben on YouTube. Fast forward to about 3:18, where he covers the terminology that he uses.


Here are the other parts: Part 1Part 2Part 3

Market Profile articles and glossary

I found some good educational material on Market Profile at Market Profile Trading.

First of all, here's a great glossary of terms.

Then they have a number of articles on their site:
The articles all seem to be available as PDFs too.

FTSE100 loving that opening gap trade

I really am loving the opening gap trade. Another great example this morning, for 11 pips.


I had a bearish bias anyway, after yesterday's FOMC. FTSE100 (UK100) CFD opened with a small gap-up, I waited for the opening swing to set its high and then entered short. Normally I would close the trade when the gap closed (which would have been 8 pips here), but I had bearish bias, and was hoping for more follow-through. There was some but not enough, and I eventually closed the trade for 11 pips.

Trading an instrument like the UK100 or GER30, which is not 24 hours provides some great opportunities when the market opens.

Wednesday, December 12, 2012

FOMC bar-by-bar on S&P500

Some charts of S&P500 during today's FOMC news event (including rate decision, FOMC forecast and minutes).

Here's the Footprint chart first of all. The important thing is to see where the volume is taking the price. The POC (Point of Control) shows the highest volume node in the candle.


  1. The initial few minutes is just crazy, and it spikes up and down, then finally settles on up, and keeps going on up.
  2. The POC is in the centre of the candle still. I've seen enough of these to understand that there is still momentum to this move, and it will not reverse just yet.
  3. Now, the POC has moved to the top of the candle, and it's a down bar - this is good, the selling has overcome demand and is pushing the price down.
  4. The next bar is up, and POC is slightly higher than previous bar, but it is very slight. Still a battle going on, but the winner will be declared soon.
  5. POC is now lower than previous few bars. Signs of strong buying or selling seem to have dried up for now. This is mostly sideways.
  6. The POC continues to go down, and the sell off starts.
  7. This bar is very interesting, a last fight from the bulls, but it does not reach the significant POC from few bars back, and is strongly rejected. This is very bearish, and following candle proves it. The bulls firmly routed.
  8. As we reach the original level, there is lot of churn - people covering / liquidating positions as the move is officially over.
  9. POC continues lower, as we head into overnight session.
Here's 5 min Market Profile chart. The profile is a mess, hard to get much from it.


Here's my attempt of a manual split for the Market Profile. The pre-FOMC is fairly squat and compact as you'd expect. FOMC is a classic 'P' profile - up move followed by consolidation. The down move, is more of a classic trend move, thinnish and building volume lower as it goes.


Here's an automatic time-variable Market Profile.


My outlook is bearish for next couple of days. S&P500 was already high, and news pushed it higher; this is VSA "climax up", i.e. people getting suckered into buying, so smart money can sell into it. There's a nice head and shoulders pattern on the 5 min chart by the way, this is a classic distribution pattern!

In very short term, I expect further fall in Asian session as they catch up with this, and then probably rally before further declines. But this is just my opinion, not trading advice.

13/12/2012 update:

Here's the same period, using CandleProfile indicator. This indicator uses lower timeframe data (in this case tick) to construct a 'profile'. Only the Value Area and POC are displayed. The results are very similar to the Footprint, but a little less cluttered on the chart. Of course, the buy/sell classification is lost also.

Tuesday, December 11, 2012

Comparing multiple instruments

This indicator is something I've been meaning to complete for some time. It is similar idea to the Currency Strength Meter. It presents 7 (user selectable) instruments on the chart, and shows the relative increase/decrease, since some fixed datum (can be start of the chart or user specified time), as a percentage. The 7 limit is only a programming limit (7 colours of the rainbow) - it is arbitrary, and easily changed.

The user can select the instruments, and also easily enable/disable, as well as invert, the instrument. (Inversion is useful to ensure the instruments are all roughly positively correlated, e.g. EUR/USD is normally negatively correlated to USD/CHF - so one of them has to be inverted).

In the following chart I'm using it with SPX500, UK100, GER30 and a few others. You can see how UK100 and GER30 are flat when their market is closed. SPX500 is 24hour. If SPX500 were to make a big move up/down overnight, then there would be a big reaction on the open of UK100 and GER30. Such overnight imbalances are easy to spot with this indicator.


Here are the inputs.



This indicator is still in development (Beta test).

Monday, December 10, 2012

Gap indicator

Still in testing, but this indicator looks promising. It overcomes the issue of FXCM data feed missing the price gaps, by reconstructing the bars from tick data. Unfortunately, this means it will be slow to load on a full chart - but for small time frame charts, or when only a few bars are required (e.g. when you look at the daily open), it is quite useful.

Here's EUR/USD with the weekend gap when the market opened. The indicator will highlight any gap bigger than a certain size (which is an input parameter). Here I set it to 2 pips. On a liquid instrument like EUR/USD  gaps that size only normally occur on weekend open, or huge news events.


Here's the input parameter screen.


This indicator is still in development (Beta test).

FTSE100 range trading

FTSE100 (UK100) CFD opened with small gap down. As usual, it quickly closed and then continued down. This is bearish sign (at for initial move), and shows supply at this level. I took a short scalp trade on the opening move. I then re-entered long at the bottom of the range - this was demand level from last Friday, and the market is still trading a range. I'm still in scalp mode on this instrument, and ended up closing the position way too early.

When price reached the supply level it was pushed back down, but then headed back up again. I will try for another short at the top of the range.

Weekend gap on EUR/USD

There was a weekend gap down as trading on the Euro opened in Asia. This was a gap down, in the direction of prevailing trend, usually caused by eager traders trying to catch an existing trend. It's often referred to as "novice gap". These gaps, nearly always close quickly. Trading the close of the gap, is often a high probability trade.

I was busy this evening, so I didn't catch this one early enough, but took a trade anyway.

Sunday, December 9, 2012

Labels on Market Profile

I finally added TPO count labels to the Market Profile indicator. With this addition, it is possible to add 3 different labels to the profile:

  • Top label is the name, e.g. the intraday session, day name, or full date/time
  • Side label is the TPO count (or tick volume if a "Line (tick volume)" option is used)
  • Bottom label shows some additional statistics, currently +POC (number of TPOs above the POC), -POC (number of TPOs below the POC and RF (rotation factor)

Friday, December 7, 2012

Congestive Market Timing: The Run-Pause Profile

I found this article on the CISCO Meta Profile site (their version of Market Profile). It's something they call the "Run-Pause Profile", basically it is tackling the method of finding the points at which the market moves from balance to imbalance on intraday level.

For this article they use the term congested and non-congested. Congestion is balance, pause, horizontal development. Non-congestion is trending, breakouts, vertical development.

It is similar to Peter Steidlmayer's variable time profile. They briefly describe the rules it uses for determining the congestion / non-congestion state.

This is an interesting section.

The Run-Pause Profile (TM)/Congestion Profile (TM) 
Applying auction market theory rules, we have developed the Run-Pause Profile (TM)/Congestion Profile (TM). The Run-Pause Profile is designed to give the day trader a here-and-now intra-day reading of the short term market condition (intent). It can be a sensitive market timer for the day trader who understands profile concepts. For the product reported here, the method begins a day by assuming a congesting market on the time frame the customer has chosen (5, 10 or 15 minutes are the permitted selections). It then sets a congestion-range price target. If the target is exceeded within the first four time periods (time frame chosen by the user), non-congestion is assumed and the search for congestion is restarted. So 20 minutes is the minimum length of time considered to be a completed 'congestion profile' for a 5 minute time frame. (A time frame of 10 minutes takes forty minutes to complete and a time frame of 15 minutes needs 60 minutes.) The standard time frame for the Meta-Profile is 30 minutes (30 minute bars), too large for much intra-day definition, but just fine for a complete day. The Run-Pause Profile requires a different basis from the Meta-Profile, a different approach, as explained above. 

Trading the NFP on FTSE100

I've been trading UK100 (FTSE100) CFD recently. It's been in a nice range for past few days, and I find this a safer way of trading for me. Also, it is less volatile than forex.

Looking at the overnight gap, led me to believe that there was no strong bullish sentiment. (The gap was down, it filled, and then price continued down).

The NFP is always an exciting time. It was good news this month and so price shot up to the top of the range (but did not break the previous day's high). Fading the news, involves waiting for a few bars (various sources say 20mins) and then entering a trade in the opposite direction (so I shorted in this case). The initial move up was actually a gap-up, which did fill, but this indicated to me that there was demand down at  those lower prices. I factored this into my exit strategy. With hindsight I could have squeezed a few more pips out of the trade, but I was happy with what I got, because price did rally afterwards. That's probably the last trade today, since things get very sluggish on Friday afternoon, and I don't want to get stuck in a position over the weekend.

Coloured TPOs for Market Profile

In the last release of Market Profile I added a "coloured TPO" option. I find this quite useful for showing the development of a profile. The following chart is of UK100 (FTSE100) CFD, 5min bars.

I normally, set the "profile period" to "Daily", when "coloured TPOs" is used, it colours the different intra day sessions with the specified colours - assuming you have correct sessions defined of course. Here's an example.


In the following example, I set the "profile period" to "Intraday" , but I only defined 1 intraday session. This will then use 2 further parameters to decide how to cycle the colours. The parameters can be found in the "Colouring and effects" section for the indicator's parameters.


TPO colouring param#1 is the number of bars per colour. This is 5min chart, so 24 is equivalent to 2 hours. TPO colouring param#2 is the number of colours to cycle through, the cycle starts again if it needs to.

Here's the resultant chart.

Missing the gaps!

I wrote about gaps on my blog yesterday, well today I used my new indicator technique to good use - on the UK100 (FTSE100) CFD. Now, this CFD is not 24 hours, and so when the market re-opens again at 8:00 UK, there is the potential for a large gap to form. Checking the overnight action SPX500 (which is 24 hours), I could see that prices moved down slightly from the price at time at which UK100 closed - nothing spectacular, but enough to suggest that there would not be any big gap up when UK100 opened.

What happened? Well, the market gapped down (as the market gets back in-line with overnight sentiment as indicated by SPX500). As often happens, the gap was then closed. Once the gap is closed, the market goes on its merry way - often in the direction of the original sentiment. This is the opening swing, and analysis of it can give very good clues about the sentiment of the market and how it might affect the day ahead.

Here's the chart showing gaps.


Here's the normal chart for reference.

Gaps and volume

The FXCM data feed for MarketScope does not show gaps in price action. The open of a bar/candle is always the exact same price as the close of the previous bar/candle. This is not what happens in real life! It's almost as if someone thought it would be a good idea to make the candles all line up or something. In reality these gaps (micro-gaps, weekend gaps, etc.) are vital trading clues for the informed trader.

I've actually written a little indicator to read the tick data and reconstruct the proper candles. However, since it is using tick data it is incredibly slow. I guess I could do this offline, and then store the values in a file - effectively making my own price server, but it would be much better/nicer/quicker/safer if FXCM just provided the right data.

Here's screen shots of the 1st test of this indicator. You can see that the price sometimes jumps and the opens and previous closes do not line up. This was 5min chart of GBP/USD. The gaps in this chart are nothing particularly special; important gaps are "weekend gaps" (could be "novice" or "professional") or gaps when the price moves rapidly, e.g. on news spike, etc.


For reference, this is the same time period with the normal data. There are no gaps in the price action, and the opens and previous closes all line up.


Similarly, I've posted about issues with volume many times too. I've also managed to work around this too - but again it uses tick data which is just too slow to use all the time.

I have posted (again) about this on DailyFx. Maybe if enough people complain / support my concerns then FXCM will finally think about doing something... but I won't hold my breath.

The DailyFX post is here, feel free to add your own views.

Thursday, December 6, 2012

FTSE100 again, longer term context

I was wondering what resistance was keeping the FST100 (UK100) in its current range. Using Market Profile with weekly periods, and zooming out you can see a clear supply zone from about 4 weeks back. This is typical of a supply zone (several bars of fairly tight up/down bars, as supply comes in, selling into the up-move), and the sellers totally swamp the buyers at this point, leading to imbalance and a bearish phase.

That was back in early November. This week price reached this former supply level again, and it seems to be what is keeping the price in the current range. The weekly range is much tighter than the past few weeks, but how long will it last?


Crucially, although this zone is formed resistance, there is little evidence of much supply. This should indicate that the zone is weaker, and might be broken through.

Wednesday, December 5, 2012

Market Profile / Market Auction Theory Webinars

Some more webinars from Dr. Keppler (I might have linked some of these before):

Variable time Market Profile on FTSE100 index

On this chart I used the variable time feature of my Market Profile indicator, on FTSE100 (UK100). This is using Peter Steidlmayer's concept; a new profile is created when the price breaks the range of last 9 bars, and profile is at least 12 bars old. The chart is using 5min bars. The idea is to split the price action into distinct areas of balance and vertical movement.

Steidlmayer identified a problem with traditional use of Market Profile in modern markets. When Market Profile was invented, there was usually just 1 or at the most 2 balance areas in a day's trading range. However, modern markets behave differently, and the market will lurch from balance to imbalance to balance again. Steidlmayer's idea of splitting the profile is simple, but quite effective, and does a good job of splitting the price action into 'D', 'b', 'P' or 'B' profiles.

Here's the UK100 5min chart from today.


Overlapping 'D' profiles can be considered part of the same range, and shows balance in the market. Such areas can be traded by selling the top of range, and buying the bottom of the range. But eventually, it has to break. Today's action shows a 'P' profile causes by a rapid move higher followed by consolidation.

'P' profile in an established down-trend usually indicates short covering. But that's not the case here, as the market was moving sideways.

This morning's action is undoubtedly caused by the UK's "Autumn Forecast Statement" - which is expected to be not very good news, Osborne has "no miracle cure".

There was a nice trade later in the day. The price eventually made its way back down to the open level, and was met with demand, which after a little base-building shot right up. I had limit order at the nearest POC, but this is one of those trades where I wish I'd use multiple lots and left a runner, because it went up to the top of the range and beyond. You can see from the chart how influential thelower  NPOC (Naked Point of Control) was.

Tuesday, December 4, 2012

Stop hunting and liquidity

Some interesting articles on stop-loss hunting, which I came across whilst researching VSA techniques.

The Art of Stop Hunting Part 1
The Art of Stop Hunting Part 2

Stop-loss hunting is a specific case, but in general big money / smart money will seek liquidity wherever it can find it, since this reduces their transaction costs. This is a fundamental of VSA, if big money is accumulating, and were to simply buy $millions of some asset, this buying would drive up the price of the asset. Therefore, the average price of each contract bought would be higher than their notional entry price. Therefore, big money has to buy or sell into liquidity in order to reduce their average average cost of buying / selling. If they can use a period of low liquidity to temporarily drive price down into an area of high liquidity (i.e. pending stop loss orders), they they can buy more cheaply and therefore reduce their costs.

Thursday, November 29, 2012

Yet more on volume!

Made another workaround on the Volume indicator. This version allows 2 data streams to be specified, well 3 if you count the normal stream. For example, in the following chart I had daily bars, and then 2 additional streams 20 days back using 5min bars, and a few days back using raw tick data.

Using raw tick data seems to overcome the problem with the last day's data being too high. So, far it seems to look better. But only time will tell.

In the below chart, the top volume histogram is the new 'Volume2'; the middle one is the regular tick volume, and the lower one is 'Volume1' which reconstructs using just 1 other data stream.


All this, just to overcome errors in FXCM volume data! It would be better if they could fix this at source. Maybe if enough people ask them they will fix the problem!

Market Profile and Composite Profile

Just to remind people that I updated Market Profile and Composite Profile to Release 6 a few weeks back. I didn't send this automatically because, well a) the changes were not major, and b) I didn't want to bother people with more updates, and c) I figured people would ask if they wanted it. If you already have a license for these indicators, and want the updated version, please just drop me a mail, and I will send the updated version.

Composite Profile (Release 6)
  • Added 2 new modes: “N bars back” and “Manual” mode

Market Profile (Release 6)
  • Added support of VWAP bands with +/- standard deviation levels
  • Added variable-time profile mode
  • Added “coloured TPO” colouring effect
  • Ability to disable the “tool tip text”
  • Ability to set the font size for TPO charts
  • Addition of profile labels
For anyone else interesting in these indicators, they can be purchased on my blog. You can also request a free trial.

Sunday, November 25, 2012

BETTER_VOLUME indicator

I've produced a modified version of the BetterVolume indicator. This version uses lower timeframe data to reconstruct the volume bars, thus overcoming many of the issues present with FXCM tick data. The current day's tick data still seems to be higher than normal, but the other problems of anomalies and high values in the current week seem to be better handled.

The logic for Better Volume remains unchanged - I am not the inventor of this logic and take no credit for it. Details of the original indicator can be found here. My work only extends to fixing / providing workarounds for FXCM tick volume data for this MarketScope indicator and other issues . However, I'm actually working on something similar though, utilizing VSA techniques.

Here's a chart showing the normal BETVOL indicator and my new BETTER_VOLUME version. You can see the large anomaly "climactic churn bar" is no longer there.


This indicator is now posted to FXCodeBase. You can find it here.

Friday, November 23, 2012

Using Futures Volume for Forex

Although I've made significant progress with workarounds for tick volume problems for daily charts from FXCM, I'm still not quite there. One alternative that I was looking into was the use of volume from the future's market.

There is the COT report which comes out on the Friday. There is an indicator for MarketScope on the FXCodeBase site.

CME also have data for futures and options on their site, including 10-min delayed data in the form of charts, and even showing depth of market. Some quite interesting stuff there. For example, for the Euro FX futures contract.

I can't embed the chart link here currently, but here's a screenshot of the daily chart for the December Euro Fx contract, with volume (you can select charts from the above link).


For comparison, here's the spot forex (with tick volume) of similar period. (NOTE: the futures chart is for December contract, which is why volume doesn't exist before September, and of course people are still trading the previous contract then as well, so volume takes some time to ramp up).


Using real daily volume will be useful to compare against the accuracy of tick volume, or for better trading decisions.

Wednesday, November 21, 2012

More on volume

I have continued my study into tick volume data from the FXCM data feed which MarketScope uses.

I concluded (or at least deduced) the following:
  • Using the regular tick volume on daily bar data can have large anomalies (e.g. much larger than average volumes for fairly average bars).
  • The volumes for all bars in the current week seem to have higher than average volume (i.e. higher than the previous week's volumes).
  • After the Friday close, FXCM seems to do some "cleaning" of the tick volume data. This means that when the chart is re-opened, e.g. on Saturday or Sunday, the large volumes and some of the anomalies seem to have been removed - at least sometimes.
  • Intraday data, in general seems to be better. However, as mentioned already the current week's data still seems to be higher than normal.
I wrote a couple of volume indicators: Volume and Volume2. The indicators just shows the tick volume as a histogram, along with simple average and upper/lower bands. The bands can be standard deviation or a simple fraction/multiple of average volume. The histogram bars are coloured according to whether the volume is above or below these upper/lower bands. This indicator is designed for use in volume studies, such as Volume Spread Analysis.

However, the difference between the 2 indicators is that Volume uses the regular tick volume, whereas Volume2 reconstructs the data from intraday data. In the latter case, the period of the intraday data can be chosen, e.g. to be H1, m5, m1 etc. even tick. However, using the lower timeframe data has a speed penalty, since it takes longer to load the data. To overcome this, the indicator allows you to specify how many bars of data to initially load in this manner.

The following chart shows the 2 indicators in action...


At the bottom are the Volume and Volume2 indicators. The top one is Volume (using the regular daily tick data). You can see the anomalous (very big) bar from last week, and that this week's bars are all higher than normal. The middle one is Volume2 (using 1 hour data to reconstruct the volume). The big anomaly bar from last week is now gone, but the current week's volumes seems a lot higher than normal. Finnaly, at the bottom, is Volume2 again (this time using 1 minute data to reconstruct the volume).  Here, at last, the data seems "normal". There is still a big bar in this week's data (yesterday's bar in fact) - but I actually think this is a genuine big volume bar - it was a "churn bar" (long tail, mark-down on news followed by professional buying).

In both the above uses of Volume2, the indicator reconstructed the volume only for the last 20 bars (20 days); for older bars it used the regular volume data. This is just a trade-off of loading speed vs accuracy. The value of the "last N bars" is an input parameter.

This indicator is now posted on FXCodeBase. You can find it here.

Thursday, November 15, 2012

VSA on EUR/USD

I've started looking at VSA (Volume Spread Analysis) again. I had performed some studies on this topic last year. Actually, I was working with artificial neural networks at the time, but did not make much progress (it is a big topic).

Anyway, for various reasons, I took another look at it. Here's a daily chart. I'm also using my Candle Profile Indicator, which is essentially computing Market Profile of each daily candle, but in the mode I used here it only shows the POC (black 'blob') and the Value Area (black vertical line). Just like a regular Market Profile, POCs and NPOCs in particular are often good support / resistance levels, and price nearly always reacts at them. Furthermore, I am noticing the fractal nature of the market, and at many time frames when a POC is in the middle of a long tail, and price closes above it, it means buying (accumulation), and following bar will very often close higher. This is clearly seen in the chart.

I think the combination of VSA techniques, and Market Profile has the makings of a potent combination.

Installer files for indicators

I've now created "installer" executable files for all the indicators on my site. This will make it a little easier to install when there are multiple files involved. You can still manually install the indicators if you want.

I'm using the Nullsoft Scriptable Install System, as recommended on FXCodeBase. I actually tried this before, but had problems with gmail blocking the "exe" files.

Wednesday, November 14, 2012

Currency Strength Meter

Still one of my most popular indicators is the Currency Strength Meter. It was the first indicator that I converted for MarketScope. The indicator computes a mathematical value known as the "geometric mean" of several currency pairs, in order to create an "index" for the currency (similar to USDX or USDOLLAR). It does this for USD, GBP, EUR, CHF, JPY, AUD and CAD.


You can also use the output as an input to another indicator, e.g. MACD or RSI, as shown below, which calculates the RSI for JPY.

Footprint meets Composite

If you look back at one of my earlier posts on the Footprint, it has the option of a composite / line style. In later development I took this out, since it didn't seem to give particular good results - mainly because after several cycles of buying and selling, the "delta" at a particular price level doesn't really have much meaning any more.

But I've made some improvements since then, both to the Footprint indicator and to the Composite indicator. Here's my latest attempt to combine the too. It is still under development - this is just a teaser for one of my readers ;-)


I'm still not sure how useful this composite style Footprint will be, it needs further study.

Saturday, November 10, 2012

MarketScope volume on daily charts

I've heard about issues with FXCM tick volume data before. There's several threads about it on DailyFx and FXCodeBase. To date, my use of volume has been mainly on intra-day, (e.g. 4H, 1H, 15min), and I hadn't seen much evidence of any problems.

However, I've been using Daily charts of late, and here I did notice a problem. The following chart was taken on Friday, as the market was closing. The whole of the current week is showing much higher than average volume. It looks a little off - the week was not particularly extraordinary. A further point is that there was a zero-volume bar for Sunday (which is Asia Monday morning, and so its only a partial bar).


I'd heard of problems with tick volume data changing over the weekend, and so I opened the chart again on Saturday (market closed of course, but you can usually still open the chart unless FXCM are doing maintenance). The zero-volume Sunday bar had disappeared. More importantly, the volume bars of the previous 5 days looked a lot different. The daily bars older than the last week seemed to be identical or very similar. For some reason the Thursday bar showed huge volume, which seemed quite odd as it was a small range bar. Wednesday was larger range 'churn' bar, and I would have expected that to have the highest volume of the week.

Here's the chart, you can see the regular "tick volume" which MarketScope shows, and also just beneath it an indicator that I am developing at the moment. My indicator is showing the mean and standard deviation lines, but other than that the volume values are the same (I just wanted to show this to prove that the issue is not in my indicator, but in the actual daily tick volume data).


Next, I opened an 8 hour chart of the same pair. If you count up the days' volumes by hand (i.e. 3 x 8 hour bars to make a day's volume), the figures seem much more reasonable. The following chart shows the 8 hour bars, grouped in 3's for the last week. Adding up the tick volume for these 8 hour bars should give the 'correct' daily volumes. The values look more like normal volume values. Here, Wednesday now has the highest volume of the week, and Thursday's volume has returned to a more normal level.


What does this mean? Well, it seems to confirm that there is a problem with the daily tick volume data. However, the intra-day data seems to be more reliable. I didn't check weekly, monthly candles (I never use those). I also need to check again when the market reopens on Sunday night, and see if there are any other differences.

I modified my volume indicator, so that it uses a separate, lower timeframe (e.g. 8H or 1H, etc.) version of the same instrument. The indicator then computes the daily tick volume from these lower time frame bars, much as I had done manually. This seems to get around the issue with the daily tick volume data. The following chart shows the new indicator in action with 1H and 15min bars, as well as the original indicator as shown previously. The week just past looks a lot more reasonable now.


Implications for other indicators? I would be very suspicious of all MarketScope indicators based on tick volume when using them on daily charts. When used on intra-day timeframes, they should behave more reasonably.

I'll be making sure that any volume indicators that I write will use this technique.