There are legions of dedicated market profiling users who are desperately dedicated to this market driven information tool. Although I don’t usually write about Market Profile (MP), for reasons I don’t fully understand, MP is a great tool for understanding the general structure during the course of the trading day. To clarify, I am a reseller so I don’t use MP long term, but there are great apps that use the system if your business horizon is longer than 15 minutes.
What is Market Profile about?
The system has its roots in the Chicago Board of Trade (CBOT) and was initially developed by J. Peter Steidlmayer and was released in various incarnations in 1985 and later years. The purpose of Steidlmayer’s research was to measure market value as it develops throughout the trading day. In strict PM theory, several market participants are identified; local, commercial, members ordering for other members, and members ordering for the public. The recent PM theory can be more easily understood in a popular book by James F. Dalton, Eric T. Jones and Robert B. Dalton titled “Mind Over Markets”, 2013 edition. While the book is certainly not easy to read , a careful study of the book can be very helpful in understanding the daily market structure and helps to identify the participants driving the e-mini trading price movement.
So who cares who is driving the market movement and what good is this knowledge?
As I mentioned before, I do not start operations specifically based on the market profile, rather I use the profile to identify specific areas that possible operations with e-mini can develop. Areas such as stock areas, developing value areas, auction actions and reactions, and bracketed markets are very helpful in alerting traders to e-mini trading opportunities. At this point, you might be wondering, if I don’t use the system to identify specific business opportunities, how do I integrate MP into my business system?
Order flow is the wild card in this equation. I currently use the tradetheeminis and sceeto ordering systems. If I can determine specific areas, using the MP system, where trades are likely to take place, then the order flow can point (in real time) the direction of trades in these general areas where trades can be started with astonishing precision. . Additionally, by using real-time confirmation indicators such as tape reading and analysis, along with PM and order flow, you can initiate some extremely accurate business setups.
Due to the complexity of understanding PM theory and applying it to your trading, it is often overlooked as too technical or time-consuming for the e-mini retailer. I can tell you that the time spent understanding market structure, order flow, tape reading, and correlated markets is well spent and will greatly increase the accuracy of your trades. Is it harsh? Yes, it is not exactly a walk in the park when you embark on the task of integrating these systems together; but the rewards are manifold.
The trading system I have outlined is in stark contrast to the status quo of correlating lagging indicators and I expect the market to continue in the direction of its late entry trading point. I don’t fully understand the current crop of non-acceptance from retailers of real-time data and indicators that are emerging in recent years. I have noticed a large number of traders wanting to sit in an operating room and take calls from a key operator. The key is wanting to see some kind of brokerage statement to decide if a room is good. What happened to learning to trade without specific calls in an operating room? In my opinion, an operating room should be a laboratory where operators interact and educate themselves, with the ultimate goal of business independence. Is it laziness on the part of retailers? I can’t tell you how many traders expect to sit in a trading room and absorb, through osmosis, what is happening in the market, but the number of such inquiries is a daily part of my trading life. As the saying goes, “give a man a fish and he will be satisfied today, teach him to fish and he will be satisfied for life.” I am interested in education and technique, not spitting jobs that participants start blindly. It is not a way to run a business and your personal trade is a business. Receiving blind business calls is like running an auto parts store and not knowing the function of a brake rotor or alternator. Like I said, it is not a way to run a business.
In short, I urge you to learn and master the techniques of real-time trading, as the tools to achieve this end are emerging and being refined daily. The lack of a more widespread acceptance of these tools, once the exclusive domain of professional and institutional traders, continues to level the playing field against the once dominant role of large trading companies.