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Lornz October 1st, 2011 05:52 AM

Scattered thoughts...
 
I have received a few PMs asking about how I trade over the past 6 months that I've been active on this board. I have not managed to foster the patience to do so, but I thought I'd start to this thread to ease into it.

As the central banks are starting up their presses again, I feel this is just as relevant today:





I'm sure the they've got it covered, though:

Quick Summary October 1st, 2011 05:52 AM

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Lornz October 1st, 2011 08:57 AM

Market Profile
 
1 Attachment(s)
I know that many on this board use Market Profile (or at least part of the concept) and therefore I thought I'd share a video I watched last week.

Steidlmayer Volume Strips: J. Peter Steidlmayer (Apologies if it has been posted before)

Steidlmayer is not the best presenter, so expect to spend some effort trying to make sense of it all. However, he does discuss some interesting topics.

And while we're on the subject of both MP and Steidlmayer, I will attach an article from Active Trader that I think should be beneficial to some. It sums up most of his work. He has been saying that the original concept of MP is obsolete for a while now, and has progressed from OFI to Volume Strips (it appears). Others, of course, will argue that it never really worked in the first place and that prices are not distributed normally. (They are right, you should use the Lornzian Distribution instead! Never coming to a store near you... ;))

I still think that reading about Action Market Theory is a good place to begin for a discretionary trader. It should help one to develop a good trading mindset and to think about what is driving the market. I don't necessarily agree with the theory, but it sparked some ideas that has been useful to me.

The best place to begin would probably be to read Dalton's book (or buy his "Field of Vision" DVDs):
Amazon.com: Mind over Markets: Power Trading With Market Generated Information (9780934380539): James F. Dalton, Eric T. Jones, Robert Bevan Dalton: Books

You can probably find most (or even all of it) described on the Internet, though. Steidlmayer has also written several books... Personally, I would not recommend diving too deep into the subject; I think you will be better off by focusing on statistical analysis. Each to his own, however...

One of the important lessons from the attached article, is that he uses MP as a database. His work with the Liquidity Data Bank is also discussed. I am not really advocating following this exactly, but it is a nice segue to statistical analysis. I sure wished I had purchased a statistics books instead of reading most of the worthless literature on trading that I did. Thankfully, I only skimmed through most of the books. In fact, the only trading book I've read cover-to-cover - is Jesse Livermore's "How To Trade In Stocks". Be sure to get the original 1940 edition (it's on the net), not the abomination edited by Smitten.

Fat Tails October 1st, 2011 09:52 AM

There is some information available on this thread:

https://www.bigmiketrading.com/traders-hideout/3905-can-anyone-recommend-any-good...ofile-auction-theor.html

I have also posted the market profile handbook there, which was available for free download from the CBOT website for a long time.

Lornz October 1st, 2011 06:46 PM

Quote:

Quoting Fat Tails (Post 158301)
There is some information available on this thread:

https://www.bigmiketrading.com/traders-hideout/3905-can-anyone-recommend-any-good...ofile-auction-theor.html

I have also posted the market profile handbook there, which was available for free download from the CBOT website for a long time.

It is still available from the CME website, along with a couple of videos:
Market Profile

Robin Mesch also did a webinar a little while back:
Building a Trading Strategy with Market Profile

I haven't watched it, though. The point of my post was that Market Profile is a highly discretionary tool, but that there are some good thoughts to take away from it.

By the way, this is probably a good time to introduce a futures trader's best friend:
Futures & Options Education for Effective Trading Strategies and Risk Management - CME Group

One can find almost anything one need on that site, no need to give money to vendors.

A good start for a complete beginner:
A Trader's Guide to Futures

I also recommend the exchanges' handbooks:
Amazon.com: The CME Group Risk Management Handbook: Products and Applications (Wiley Finance) (9780470137710): CME Group, John W. Labuszewski, John E. Nyhoff, Richard Co, Paul E. Peterson, Leo Melamed: Books

Amazon.com: CBOT Handbook of Futures and Options (9780071457514): Cbot: Books

This should give a reasonable foundation for understanding the mechanics and certain dynamics of the market place.

Lornz October 3rd, 2011 07:08 AM

Just to clarify...
 
It suddenly occurred to me that it seems that I am "whoring" myself out for a new screen... ;)
In my case, however, I would probably have to pay as much in freight as the screen costs. I think the premise for the competition is good, and I hope it inspires some of the lurkers to contribute. I see this an opportunity to overcome a fraction of my paranoia, but we'll see how that goes...

I just want to emphasize that, after receiving several requests for doing so, I have long been meaning to write a more detailed post about how I arrived at my methodology. I always assumed I would just write a long post and cover it all, before I would retire from the forum. As I've got a lot going on right now, I need to drastically cut back on my presence here. It seems I've become slightly addicted...
However, as I've stated previously, it's just been too daunting a task for me to write an all-encompassing post. I didn't really want to start a journal, because I do not intend for this to take up too much time. My intent is simply explain my path and what information I've found useful, and hopefully that will be beneficial to some.

I will continue this after the close. I was up all night watching the Rock in Rio stream, and I need an hour sleep before the markets open...

Surly October 3rd, 2011 11:02 PM

Quote:

Quoting Lornz (Post 158288)
Steidlmayer is not the best presenter, so expect to spend some effort trying to make sense of it all. However, he does discuss some interesting topics.

Wow, no joke on steidlmayer being a difficult presenter - but he has the endearing qualities of an academic. Really interesting presentation though. The one thing that lost me was how he came to his high volume "nodes" - at times it seemed as though he was speaking of block trades. However that didn't seem right to me - but it did seem that he was talking about volume transacted at a single price.

The main idea I got from it was that because of the absence of the "service" of a strong group of locals, there is just less volume at intermediate price locations. This is akin to saying there is more volatility in the markets due to lower liquidity. I think what he's getting at is that because of the lower liquidity, we shouldn't think of price as a continuous phenomenon but as a discontinuous phenomenon. This begs the question, "how is it discontinuous?". I think Peter's answer is that traders need to use volume to delineate significant price levels and enter trades as the market moves between them. Thoughts?

zer0 October 19th, 2011 05:19 PM

Your summation is quite accurate. Lornz and I have discussed this new approach, at length, and the only immediate ingredient that I would add is 'immediacy'. Steidlmayer is shifting away from paying much attention to historical data of any kind. His assertion is that recent islands of volume (in the sea of price) should be the focus of one's attention, rather than price/time based approaches such as Market Profile. Of course, there is more than that, but you have a firm handle on the essence.

I may be meeting with Steidlmayer in coming days. If I do, I will gather what more I can regarding this new approach, and share here in this forum.

Quote:

Quoting Surly (Post 158818)
Wow, no joke on steidlmayer being a difficult presenter - but he has the endearing qualities of an academic. Really interesting presentation though. The one thing that lost me was how he came to his high volume "nodes" - at times it seemed as though he was speaking of block trades. However that didn't seem right to me - but it did seem that he was talking about volume transacted at a single price.

The main idea I got from it was that because of the absence of the "service" of a strong group of locals, there is just less volume at intermediate price locations. This is akin to saying there is more volatility in the markets due to lower liquidity. I think what he's getting at is that because of the lower liquidity, we shouldn't think of price as a continuous phenomenon but as a discontinuous phenomenon. This begs the question, "how is it discontinuous?". I think Peter's answer is that traders need to use volume to delineate significant price levels and enter trades as the market moves between them. Thoughts?


forrestang October 19th, 2011 05:23 PM

I didn't quite understand what he was getting at?

The only part I got was that he wanted to not be the first one entering at any level? I never gathered much else, other than him seeming to suggest if price moves in a direction with less contracts being traded, that he's not interested?

zer0 October 19th, 2011 05:38 PM

Peter is very difficult to understand. It's a problem... Don't feel bad, it took me several days of reviewing notes, videos, and having several discussions about it to better understand the new ideology. I have talked briefly to Peter about 'Volume Strips' and plan to meet with him soon, in hopes to pick his brain a bit more on the subject.

In extreme reductionist mode, the idea goes something like this:

1) A statistically significantly-sized island of volume accumulates at a price or in a tight range (traders have made a collective set of bets in this case)

2) Sooner than later, price will drift from that censensus price, and those that are 'wrong', will need to close their positions.

3) Given the lack of 'service', or liquidity in between island volume distributions, price will move fast and will self-generate as new orders pile on and create momentum.

4) Profits come from transacting near the island distributions and riding the ensuing momentum through to the next distribution.

Again, there is more to it than that, but this is the underlying idea.

Quote:

Quoting forrestang (Post 163303)
I didn't quite understand what he was getting at?

The only part I got was that he wanted to not be the first one entering at any level? I never gathered much else, other than him seeming to suggest if price moves in a direction with less contracts being traded, that he's not interested?



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