Is it really this simple?

Below, the contents of a MP strategy primer I happened upon somewhere. Its techniques seem intuitively sound -- conventional wisdom, perhaps? -- but I lack the sophistication and depth-of-knowledge in MP to be certain. Thoughts from those with some experience welcomed! Anyone?


(Category 1)
Trading Methods For Market Profile

Only trade in the direction of the trend (Trend is determined by a rising or falling Point Of Control/POC)


Trade setup #1a: In a down trending market, when the current session opens below the previous day’s Value Area/VA enter a short trade at the previous day’s lower VA and again at the previous day’s POC/HVL placing a protective stop for both trades 1.5 points above the previous day’s upper VA.

Trade setup #1b: In an up trending market, when the current session opens above the previous day’s VA enter a long trade at the previous day’s upper VA and again at the previous day’s POC/HVL placing a protective stop for both trades 1.5 points below the previous day’s lower VA

Trade setup #2a: In a down trending market, when the current session opens within the previous VA enter a short trade at the upper VA placing a stop 1.5 points above the Day Before Yesterday’s/DBY POC or High Volume Level/HVL (the open price must be at least 2 points below the previous days upper VA)

Trade setup #2b: In an up trending market, when the current session opens within the previous days VA enter a long trade at the lower VA placing a stop 1.5 points below the DBY’s POC/HVL (the open price must be at least 2 points above the previous days lower VA)

Trade setup #3a: In a down trending market, when the current session opens above the previous days upper VA and below the DBY’s lower VA enter a short trade at the DBY’s lower VA and again at the DBY’s HVL placing a stop for both trades 1.5 points above the DBY’s upper VA (if stopped out on this setup and price remains above the stop level, change directional bias for all category 2 trade setups for the remainder of the day)

Trade setup #3b: In an up trending market, when the current session opens below the previous days lower VA and above the DBY’s upper VA enter a long trade at the DBY’s upper VA and again at the DBY’s HVL placing a stop for both trades 1.5 points below the DBY’s lower VA (if stopped out on this setup and price remains below the stop level, change directional bias for all category 2 trade setups for the
remainder of the day)

Trade setup #4a: In a down trending market, when the current session opens above the DBY’s lower VA and below the DBY’s POC enter a short trade at the DBY’s POC and again at the DBY’s upper VA placing a stop 1.5 points abve the DBY’s High Of the Day/HOD (if stopped out on this setup and price remains above the stop level, change directional bias for all category 2 trade setups for the remainder of the day)
Trade setup #4b: In an up trending market, when the current session opens below the DBY’s upper VA and above the DBY’s POC enter a long trade at the DBY’s POC and again at the DBY’s lower VA placing a stop 1.5 points below the DBY’s Low Of the Day/LOD (if stopped out on this setup and price remains below the stop level, change directional bias for all category 2 trade setups for the remainder of the day)


Profit targets for all trades should be in consideration of the risk of each respective trade and should be placed in consideration of the previous days POC, VA or HVL




(Category 2)
Trading Methods For Market Profile

Category 2 trades are based off the current sessions VA, HVL and POC with profit targets of approximately 2 points (they will generally setup after steps 1 and 2 have occurred in the market profile’s development)

When a Category 2 trade’s entrance level matches up with a previous days HVL It is referred to as a Category 2+ trade (category 2+ trades are generally good for 3 or more points)

Step 1 being vertical movement of price and step 2 being the capping of step 1

Step 1 will generally takes place during the Initial Balance/IB period of the day (the first 60 minutes) Step 2 often occurs during the IB period as well

Step 3 is when the market begins to move more in a horizontal direction than vertical direction and the bell curve begins to take shape

Step 4 is when the bell curve is becoming fully developed and its POC tries to drift towards the center of the IB, if it is not already in the center (occasionally steps 3 or 4 do not fully develop and the market enters step 1 again, this is known as minus development)

Minus development is very helpful in showing the direction of the market

Larry McMillan documented it with, I believe, over ten years of data (might have been 15, actually) in "McMillan On Options", The effect was particularly pronounced after quarterly triple witching, but it was marked in other months as well -- with the consistent exception of December.

It's an excellent book, by the way. Rigorous and rich in content...

...as for the rest, well, now you're getting existential on me...

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Originally posted by poster

Larry McMillan documented it with, I believe, over ten years of data (might have been 15, actually) in "McMillan On Options", The effect was particularly pronounced after quarterly triple witching, but it was marked in other months as well -- with the consistent exception of December.

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I ran a similar study here:
Expiry Fridays - Bullish or Bearish?

Studies like that are relatively easy to do nowadays because (1) Spreadsheets can hold vast amounts of data (2) Vast amounts of data are available for free on the internet (3) Most people now know how to write formulae in spreadsheets.

I'm not knocking his research but just stating a fact. It will probably continue to work because it has become a self fulfilling prophecy - which is not a bad thing. Now the trick is to isolate the times that it doesn't work and find a signal/sign that tells you when it's not going to work - that's the sort of info that the real pros know.

quote:

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Originally posted by poster

...as for the rest, well, now you're getting existential on me...

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True - and that doesn't make us money - just wastes our time theorizing...

Just looked up the McMillan info...you'll find it on page 149 of the latest edition (copyright 2004). He bases it on 20 years data and, what I find most compelling, is that he offers an explanation for the effect that does seem plausible.

In short, it is the effect of markets adjusting to buy/sell programs of the previous week. For an opex week to meet the criteria, the OEX (the standard he's using) must move at least 1.5 points either up or down between the Friday before opex and the Wednesday, Thursday or Friday of expiration week. He then suggests a specific trade strategy, including targets and stops, using OEX options, for the following week.


By the way, did you notice the overnight high in the es? 1293.75 on the offer...the POC from the 1/03-1/11 superprofile holds fast...so far...

Sounds like a good book - I'll have to add it to my not very short reading list.

Your bias has panned out well this morning with a convincing move down and an enormous 9.5 point IB in the ES. Just wondering if this is going to be another normal day like 1/27 when we had a 12 point IB.

Yes, it was a nice ride, and I wouldn't think of reshorting until that bank of singleprints right above is filled. Would you?

Yes I was thinking of shorting at 90.5 (the single print) or more conservatively at 91.25

shorting right above the uva? but mightn't one also think of that as the place to put one's buy stop?

Yes you could - depends on how much wiggle room you'd give the single print short. As I type this the DVAH is around 88.5 so there is a potential short there but I think that the Fed are about to release the minutes of their last meeting in 15 to 20 minutes time...

I think trading the stock index futures is one of the most rewarding and toughest things. Few logic in intraday ES moves for example. It cannot be traded using typical candelstick, patterns, indicator methods. Only pretested strategies may be profitable on this symbols. Don't say it's impossible to trade it discretionnarily, just say there will a great part of chance.