TPO count - please explain

Hello,

Could somebody, please, clarify for me the concept of TPO count?
In the CBOT's handbook (www.cbot.com/cbot/docs/handbook.pdf)
on MP there in a paragraph on the subject (p. 35-36):

"We're counting TPOs because they represent market activity.
In this example, there are 70 above and 89 below (POC)
The imbalance we are looking for is on the side with the
least amount of activity because the longer term trader
is only a small percentage of total trade in the value area"

What exactly is meant by the "imbalance being on either side"?
The dominating buying or selling participant? But in this
case, this would mean that, in the latter example, sellers
are the dominating force for there are fewer TPOs on their side.
Which is exactly opposite to the correct interpretation, isn't
it?

Later on, we read:

"To explain more fully, the value area is primarily for traders
seeking a fair price ...."

OK, that is clear...

"...Therefore, the side with the most activity has to be
short-term activity. That's where the price in the value area
will be fairest. In other words, no one is giving up an edge
there."

And here I'm lost completely... I just can't figure the concept
out. Does it mean there is no long-term activity in the area
of most activity (89 TPOs in the latter example)? But shouldn't
70/89 TPO count mean that it is the long-term buyer who's more
active in the value area?

"Returning to this example, the side with the least amount of
activity is above the fairest price. Since the market moves up
to shut off buying, the longer term buyer was most active in this
value area."

Now, this finally makes sense to me (because of active long-term
buyers, the POC moves up resulting in increased number of TPOs
below it and reduced TPO count above), but seems to contradict
what has been said previously.

Thanks in advance for your help.
Regards,
Noal

Here is the profile for the ES for Friday:

[1459.75] R
[1459.50] QR
[1459.25] QR
[1459.00] PQR
[1458.75] PQR
[1458.50] PQR
[1458.25] PQ
[1458.00] DGPQ
[1457.75] DFGMPQ
[1457.50] DFGKMNP
[1457.25] DFGIKMNP
[1457.00] DEFGHIJKMNP
[1456.75] DEFGHIJKLMNP
[1456.50] DEFGHIJKLMP
[1456.25] DEFHIJKLM
[1456.00] DEFHJKL
[1455.75] DEFJKL
[1455.50] DEFKL
[1455.25] E
[1455.00] E
[1454.75] E
[1454.50] E

By the way, what market do you watch the most? ES?

quote:

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Originally posted by tomdz

Could somebody, please, clarify for me the concept of TPO count?

---

Each letter in the profile is a TPO. When you add them up that is the count. So if you're looking at a count above the POC then you add up the ones above etc.

quote:

---

"We're counting TPOs because they represent market activity.
In this example, there are 70 above and 89 below (POC)
The imbalance we are looking for is on the side with the
least amount of activity because the longer term trader
is only a small percentage of total trade in the value area"

---

Obviously not using the example above. They are saying that the longer term trader is not always active and it is they that have created the imbalance - i.e. more TPO's on one side of the POC. The short term trader will have a propensity to push trades towards the imbalance and remain in value. It is the struggle between these two timeframes and the winner which determines which way the market moves.

quote:

---

What exactly is meant by the "imbalance being on either side"?

---

More TPO's on one side than the other. Less TPO's on one side than the other. A balanced profile would have exactly the same number of TPO's on each side of the POC.

quote:

---

The dominating buying or selling participant? But in this
case, this would mean that, in the latter example, sellers
are the dominating force for there are fewer TPOs on their side.
Which is exactly opposite to the correct interpretation, isn't
it?

---

Not neccessarily because the longer term traders could be net sellers and are pushing it out of balance to the downside.

quote:

---

"...Therefore, the side with the most activity has to be
short-term activity. That's where the price in the value area
will be fairest. In other words, no one is giving up an edge
there."

And here I'm lost completely... I just can't figure the concept
out. Does it mean there is no long-term activity in the area
of most activity (89 TPOs in the latter example)? But shouldn't
70/89 TPO count mean that it is the long-term buyer who's more
active in the value area?

---

The concept of short-term activity is one of the pit traders scalping for ticks at a time and providing the liquidity in the value area. So when we are in value (around the POC) the locals understand that we are in value and the risk of scalping ticks is not high. When we move out of value it is because of the longer term trader. It is this trader that pushes the market to new highs and lows and at these levels it is more risky for the locals to try and scalp ticks so their activity will be less. Rationale: They don't want to take big risks - runaway market etc.

Not sure if any of that helped?

quote:

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By the way, what market do you watch the most? ES?

---

Warsaw Stock Exchange Index Futures.

quote:

---

Each letter in the profile is a TPO. When you add them up that is the count. So if you're looking at a count above the POC then you add up the ones above etc.

---

By the TPO count concept I meant the tool to determine if the TPOs within the value area are buying or selling. I know that a greater TPO count below the POC indicates buyers in control and vice versa. But I'm trying to understand why.

quote:

---

The concept of short-term activity is one of the pit traders scalping for ticks at a time and providing the liquidity in the value area. So when we are in value (around the POC) the locals understand that we are in value and the risk of scalping ticks is not high. When we move out of value it is because of the longer term trader. It is this trader that pushes the market to new highs and lows and at these levels it is more risky for the locals to try and scalp ticks so their activity will be less. Rationale: They don't want to take big risks - runaway market etc.

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OK, I understand this. I think I might have been a bit unclear about what I'm being confused with, so I'll write it down step by step this time.

1) The section of the handbook I'm referring to deals with determination of who of the LONGER-term traders - buyer or seller - is most active in the value area.
2) There is an example of a market with the TPO count of 70/89.
3) The authors conclude:
- the side with the most activity (89 TPOs below the POC) has to be short-term activity.
- the side with the least activity is above the fairest price (i.e. the POC) - this side is associated with the longer-term trader.

Up to this point, it seems to me that the authors want to say it is the seller that is more active of the longer-term traders in the value area. However, the next sentence reads:

4) "Since the market moves up to shut off buying, the longer-term buyer was most active in this value area." This goes well with my common-sense and also with what is given in "Mind over markets" (70/89 favors long-term buyers), but I can't see how it attaches to all what has been said before. In other words, where is the logic in this analysis and what's the purpose of all this text about short and long term traders on either side?

Noal

Sorry Noal, I'm still struggling to understand your question.

What's the purpose of all this text about short and long term traders on either side?

There will always be both long and short term traders on both sides. It's just that one will be more dominant than the other.

Try and rephrase your question in a different way and I'll take another stab at answering it.

quote:

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Originally posted by day trading

Sorry Noal, I'm still struggling to understand your question.

What's the purpose of all this text about short and long term traders on either side?

There will always be both long and short term traders on both sides. It's just that one will be more dominant than the other.

Try and rephrase your question in a different way and I'll take another stab at answering it.

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Ok, I'll put it another way: How did the authors came to the final conclusion (i.e. it's the long-term buyer who's dominant) through their analysis of long- and short- term traders' participation in the value area (which seems to yield completely opposite result). Doesn't it seem to you that what the authors are saying is - the longer term trader is present where there is smaller activity, and since it happens to be above the POC it means it's the seller rather than buyer who's in control?

I hope this clarifies my doubts. And thanks for your time and help,
Noal

I think that they came to their conclusions by analyzing the Liquidity Data Bank (LDB) of the CTi reports. CTi's 1 through 4 split traders into 4 groups from which locals and institutions can be grouped and we infer that locals are short term (close out their positions by day's end) and the institutions are long term.