I thought a nice way to round off this series would be to show how I use Market Profile and Market Delta to enter position trades. The same approach can be used to day trade; indeed, when trades don’t work out, that’s what my entries become.
I decided that the best format to do this would be to provide snapshots taken off the cam file, This would be better than attaching the whole cam file - I am not much of an editor and who wants to sit through a few hours of tedium watching someone else trade.
That is the good news - the bad news is my back is very painful tonight so I am going to cut this blog short. I’ll introduce the subject and finish it over the next day or two.
So let’s begin. The first item on the agenda is to explain the Market Delta Footprint charts (http://www.marketdelta.com/).
Figure 1 shows a Footprint chart around 11:00 am EST. The shades of green in the columns represent light to heavy buying volume (the darker the greater the buying volume) and the shades of red represent light to heavy selling volume. The numbers in the columns represent the difference between the buying and selling volume at the price. So at 1414, there were 984 more buying contracts than selling.
The blue numbers at the bottom of the page represent the total volume for the period; the green and red numbers tell me if there were more buyers than sellers and by how much. Like the column numbers, the darker the number the greater the buying or selling volume.
Market Delta has three levels of buying or selling intensity: light, moderate and dark representing a small difference, a moderate difference and a great difference between the buying and selling volume.
The next item on the agenda is to explain the Market Delta Profile charts. For those unfamiliar with the Profile, please go to:
http://www.cbot.com/cbot/pub/page/0,3181,1168,00.html
The Market Delta Profiles I use have two differences to the traditional ones:
- My Initial Balance is three periods i.e. ‘A’ to ‘C’.
- My value area, and Point of Control are volume based rather than TPO (time price opportunity) based.
I wrote why I use three periods instead of two in “The Initial Balance: Two or Three 30-Minute Periods?” (http://tradingsuccess.com/blog/the-initial-balance-224.html). Here I’ll briefly state why I prefer to use volume rather than TPOs.
Peter Steidlmayer based the use of TPOs, in effect, on this premise:
Time x Price = Volume.
When the Profile was first introduced obtaining timely volume data was difficult. Nowadays it is readily available to all. So why use a surrogate rather than the original? More importantly, I found that using Volume rather TPOs improved my bottom line by over 3% - not a figure to be sneezed at.
Let’s turn to a brief description of the Profile.
In Figure 2:
- The light grey area is the Volume Profile
- The Magenta Bar is the Value Area
- The Brown Bar the Initial Balance
- The Black line with some numbers, the Point of Control and the Volume Count. The Volume Count serves the same function as the TPO Count.
- The single Horizontal Lines with one price are support and resistance areas.
OK - tomorrow we look at the ‘good stuff’. Stay tuned!
FIGURE 1 Footprint
FIGURE 2 Market Profile
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