Mon 19 May 2008
Market Profile Terminolgy
Posted by ray under Written Plan
Baz’s question made me realise that the section of Nature of Trends involving Market Profile will not mean much to anyone not familiar with the method. So, tonight I’ll outline some key ideas from the Steidlmayer Distribution i.e. the second stage Market Profile that involved distribution patterns of no fixed periods. The original Market Profile used fixed 30-minute periods.
The Steidlmayer Distribution begins with a directional move I call an Initial Price Movement (IPM). At some point, the directional move ceases, and a correction begins. This correction is called Development. Development tends to centre around a central price, called the Point of Control.
Figure 1 shows the three ideas on a Market Profile.
FIGURE 1 Market Profile
Figure 2 shows the same idea using daily data and Barros Swings.
FIGURE 2 Barros Swing
In Figure 2, to identify the start of an IPM, I locate a swing extreme and find the closest bar that has no overlapping ranges to its left. Using Barros Swings to identify development, we need to see ‘A’ and ‘B’ (See Nature of Trends: Labeling Congestion Markets).
It’s difficult to see the Point of Control without drawing the Profile. In Figure 3, the Point of Control is .9307 and we see that prices have crossed it 11 times. With this information, you can use the formula in Nature of Trends to determine if Development has completed.
FIGURE 3
May 19th, 2008 at 4:10 pm
Ray
In fig 2, you label a rectangle: development.
I believe, this rectangle is what is also known as a Bracket which is a trading range, in Market Profile glossary.
May 19th, 2008 at 4:11 pm
Yes Ana. I believe Dalton was the first one to use the word: ‘bracket’
May 19th, 2008 at 6:55 pm
Hi Ray,In your book on page 74,you mention that a ratio exists between,”time taken for the directional move and point of control…” Later you mention” a similar concept applies to the price retracement of the directional move….” I understand the second concept.However from your chart examples on page 72 &73 ,i cant identify the first concept,as a trend change warning.What is the ratio? and at what point on Page 73 fig 4.9,are you applying the ratio to or from? Any better? cheers baz
May 19th, 2008 at 11:38 pm
Hi Baz
Yes better.
The ratio is the relationship between the retracement of time and price as compared to the directional move.
For reasons below, the ideal relationship is .40 (price (50% retracement of the IPM) x ‘time’ (range of the IPM/Number of hits on the POC)).
Marker Profile theory says that acceptance above 50% retracement of the IPM after development has begun will tend to see a move to the Primary Buy Zone at start of the IPM.
For example in last night’s Figure 3, 50% was .8964 ((.9417 - 8512)* 0.5 + 8512)).
Acceptance below it should cause a move to the Primary Buy Zone .8512 to 8625.
That’s price. Now to ‘time’
In Steidlmayer on Markets, page 75 Steve Hawkins suggests that time has an impact on as well.
We found that .80 was the ideal relationship between the time taken to form the IPM and the hits on a POC.
So the ideal ratio is .40 [.5 (Price(.5) x Time (.8)].
You now have a ratio that takes both price and time into consideration to help identify when development is complete.
Hope this helps. I’ll post an example on tonight’s blog.
May 20th, 2008 at 7:41 am
Hi Ray,
Just wondering if you could diarise to post something on how you use the Market Delta Footprint chart you’ve referred to previously, ie; using buy/sell volume to enhance your trades and entries/exits.
I’m considering a subscription to the service so would appreciate any insights on how it adds value to your decision-making process when trading. No rush, thanks. Paul.
May 20th, 2008 at 8:38 am
MEMO
Today’s CNBC presentations by Ray Shi-fu at Cashflow:
http://www.cnbc.com/id/15840232?video=747666298
http://www.cnbc.com/id/15840232?video=747689662
May 20th, 2008 at 10:02 am
Hi Paul
Thanks for the enquiry.
Unless I receive enough requests to justify a blog dedicated to Footprints, I shall pass on the request. On the other hand, I’ll be happy to show some aspects of how I use Footprints when it is incidental to a blog I am writing.