Monday, July 30, 2012

Extra 'close mark' bug on OHLC bar fixed

There was a problem with the Market Profile indicator when using the 'Show OHLC bar' option; the close mark would often be duplicated. I eventually figured this one out, and now it is fixed. It will be available in the next version, or sooner if anyone is in a hurry for it.

Friday, July 27, 2012

GBP/USD at key level

This 4H chart of GBP/USD shows Composite Profile with High Value Nodes (HVNs) in red and Low Value Nodes (LVNs) in blue. I highlighted one of the LVNs in magenta, which is where price is at right now. This was support/resistance level going back at least to middle of May. It's kept cable in this range for a while. Is it going to break or hold now? I'm not taking bets, since it is Friday afternoon now. The recent "risk on" was just based on a few words from Draghi (and I'm not sure that the Germans fully support his view). Still, there are some key meetings of ECB next week, so maybe nothing will happen until then.

Market Profile Illustrations

Here are some illustrations of Market Profile terminology. This is actually from the NQoos' "Trading Naked" site, which uses different software of course, but the concepts are basically the same.

http://www.trading-naked.com/MarketProfileILLUSTRATIONS.htm

Auction Theory Webinar

Here's an excellent webinar on Auction Theory (which is a cornerstone of Market Profile theory) by Rob Mitchell. Thanks to Big Mike for hosting this (check out his website).

At around about 47 minutes in Rob covers 4 basic profile shapes: D, b, P and B.

D = normal balanced shape
b = long liquidation
P = short covering
B = double distribution / continuation

Thursday, July 26, 2012

ECB's Draghi says ECB will do whatever is needed to preserve the EURO

Positive words from ECB President Draghi (http://www.fxstreet.com/news/forex-news/article.aspx?storyid=a885080c-1533-465d-b664-c22ce8a3f004). This made a risk-on move today across the asset classes.

Here's S&P 500 (FXCM SPX500)...


Look where price is currently sitting, on the first NPOC it comes to. Looking back at the originating profile, I don't think this one is particularly strong, so it might push through it later in the day, probably after some pull-back or consolidation.

There's a lot of data out of the US later in the day.. so anything could happen.

Wednesday, July 25, 2012

Naked POC again

This is starting to become a favourite strategy now.

An NPOC (or Naked Point Of Control) is a POC from a previous session day which has not yet been re-tested by later price action. When price eventually re-visits this POC, there is almost always a reaction. The size and strength of this reversal is the bit we don't know, but there are some clues.

Example 1: EUR/USD
Look back to where the POC was created... it was a nice balanced profile from last Friday's close. However, price gapped down on Monday morning Asian session due to concerns over possibility of Spain bailout. Price gaps, or sudden moves often show a demand or supply level (refer to Sam Seiden supply/demand for further info on this). So, this POC has potential for being a good supply level when it is later re-visited. Remember that supply/demand/support/resistance levels are rarely an exact price - usually a range. In this case, since the POC originated from a fairly narrow range profile, the Value Area of that profile could be considered as the range. Entry order to sell on the POC, or possibly the VAL (Value Area Low) and stop loss on the VAH (Value Area High).


Example 2: SPX500
In this example, the overnight POC is acting as support level. If this level holds, it will be a bullish sign.

Market Profile Day Types

Here is a link for the Market Profile "day types" (a concept which tries to categorize trading session profiles).

http://www.mypivots.com/dictionary/definition/116/market-profile-day-types

I'll try to find some diagrams or screenshots later.

Monday, July 23, 2012

EUR/USD sideways price action

This was a trade from today (Monday). There was weekend gap-down on worries about Spain bailout. But the market didn't tank, it went into sideways consolidation, with overlapping Value Areas of Asian, London and New York session. I shorted the EUR/USD when it hit the top of the range. First target (50% at the High Value Node), and remainder at the bottom of the range.


NOTE: once the range was established, it would also have been possible to go long at the bottom, however this would be counter the long-term trend. However, it would have clearly worked in this case.

Market Profile (development of the profile)

I've added a new mode to my Market Profile indicator which allows the POC (Point of Control) and VA (Value Area) to be plotted showing the development as the profile is constructed. It's best demonstrated with these 2 screenshots of GBP/USD. The parameters for the profile are exactly the same, except the 2nd one has the "Show Development" option set.

Here is the normal (default) view. The POC, VA, and profile's High & LOW are plotted as the latest data.


And here is the same chart, showing the 'development' of these outputs. Of course, the final values will be the same as in the previous chart, but this option doesn't repaint the outputs so you can see how the POC, VA, etc. developed over time as the profile was constructed.


This could be useful for trading, since if the price action remains consistently beneath the developing POC and VA, it would tend to indicate a trend (imbalance). Whereas if the price action traverses the VA area it indicates balance.

Friday, July 20, 2012

Some links, articles and webinars

An article and webinar about trading with Market Profile from Ray Barros:

EUR/USD breaking out the week's range

The EUR/USD has been in a range all week, and has been trading quite nicely between 1.2210 and 1.2320 (over 100pip range). There have been several good opportunities, particularly taking shorts at the top of the range.

Today it decided to break out. You can see from the chart, that price started going lower, and kept building volume at lower and lower levels, eventually breaking through a significant LVN (Low Value Node). Since I took this screenshot, price fell another 20-30 pips and is now at 1.2153.


This screenshot uses the exponential decay mode of the Composite Profile, which gives higher weighting to the more recent price action.


Here you can see the nicely formed profile at the point of the breakout. This often happens in the market auction; just as the point of perfect balance is achieved, the market makes a breakout. Why? I'm not sure. Perhaps it is because traders are looking to benefit from inefficiencies of the market - and when there are none, they make their own. Alternatively, just like a finely balanced set of scales, it will make a sudden move when nudged (e.g. by news - there was news of Spanish bailout today).

The other thing to note from the profile is how the profile builds volume bulges lower and lower down. This is sure sign of a trend / imbalance. The auction process drives down the price until more buyers are found.

One last screenshot. In this one I computed the Composite Profile only up to 10:30 today (UK time), just at the point of the breakout. See what a nicely formed bell-shaped curve it is? Balance leads to imbalance leads to balance.

Thursday, July 19, 2012

Market Profile Indicator Release 3

I've just finished Release 3 of my Market Profile and Composite Profile indicators.

Here's a highlight of the changes:
  • Added style for unconsolidated TPO
  • Replaced the ‘Use volume’ option with new style option ‘Line (volume)’
  • Bug-fix for Initial Balance
  • Bug-fix for duplicate close tick on the OHLC bar
  • Added HVN & LVN (for Market Profile and Composite Profile)
  • Some internal changes to the implementation
  • Input parameters split into 3 groups
  • Added ‘tool tips’ on most lines

This release covers all the main features that I set out to handle with these indicators. However, if there are further suggestion or feature requests I will look at them.

This upgrade release has been sent by email to all those who have bought this indicator package.

Some screenshots...

Intraday profile showing the 'unconsolidated TPOs'. This is useful for understanding how the consolidated TPO profile is constructed.


Naked POCs (NPOCs) can be displayed. These have amazing potential as pivot points.


High Value Nodes (HVNs) and Low Value Nodes (LVNs) are automatically detected and can be displayed. These can often be found at support and resistance levels.

Tuesday, July 17, 2012

EUR/USD on Bernanke Speech

Here's a nice case of NPOC (Naked Point of Control) acting as pivots. First of all the price is probing the high NPOC at 1.2313 during the overnight sessions. Long wick candles show the price rejection. During the Bernanke speech there is some statements causing risk-aversion (i.e. USD up, EUR down), and price plummets to an earlier NPOC, and is rejected with a very long wick.

Bernanke is still speaking, so this is not the end of it yet. But just showing how these NPOCs act as good pivots around which the price will do its merry dance.

Wednesday, July 11, 2012

'P' shaped profile

A 'P' shaped profile (long and thin tail moving up to a fatter top) after a down-move is a classic 'short covering rally' rather than new bullish sentiment. You can see it clearly here in the London session. I suspect there was a lot of uncertainty in the market, and some short positions are covered to lock-in profit. However, come the the US session, the price moves down rapidly - new shorts entering on this pull-back. Each session often show very different sentiment.


Tuesday, July 10, 2012

Stuck in a range

GBP/USD is known for being quite a 'rangey' pair. It's been stuck in such a range for the last few days. The Composite Profile shows the well established 'normal' distribution, around the High Value Node (HVN), and bounded by Low Value Nodes (LVNs) top and bottom. This is quite typical.

As it heads into the Asian session (which is normally quieter) we'd expect it to trade around the current average. However, there is some Japan data out later on, so this could cause a breakout also. This is always a problem with ranges... they don't range forever - at some point there is always a breakout. However, probabilistically ranging is always more likely.


Even if there is a breakout of this range on Japan news. I'd expect a re-test of this range in the following London or US session.

Monday, July 9, 2012

A Big Thankyou !

I'd just like to say "Thankyou" to everyone who has purchased my 'MarketProfile' and 'CompositeProfile' indicators from this site.

There is now a small, but constantly growing group of traders using these indicators, as well as increased activity about Market Profile on DailyFX forums (mainly French and German subforums).

I think nearly everyone who has bought the indicators has found it useful, and some have provided really good feedback on how to improve it.

The support that I get means that I can continue to develop and improve these indicators.

Thankyou again :-)

Sunday, July 8, 2012

High Value Nodes and Low Value Nodes as Support and Resistance

The High Value Nodes (HVNs) and Low Value Nodes (LVNs) of the composite profile are often good levels for support and resistance.  The next release of the Composite Profile indicator will automatically calculate and show these. Here's a sneaky peek.


HVN and LVN can act as both support or resistance.

Remember that an HVN is a price that was heavily traded. The fact that it now acts as support or resistance means that this price has now been rejected (at least for the moment). An LVN is a price that was only lightly traded, this is an area that was previously not accepted.