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Thanks for the words of wisdom. They are very much appreciated!
Bob
--- In realtraders@xxxx, "topos8" <topos8@xxxx> wrote:
> I'd like to comment on market profiles, price distributions and
their
> utility in practical trading situations.
>
> The Market Profile was invented by Pete Steidlmayer (a very
> successful trader on the CBOT) in the early 1980's. Steidlmayer
told
> me once that when he first got started trading (in the late 60's)
he
> learned to evaluate the market's condition in terms of these
> profiles. So the idea goes back (at least for him) to the 60's.
>
> The basic idea is that most of the activity during a trading day
> takes place in what Steidlmayer called the day's "value area". The
> center point of the value are can be thought of as the "fair
price"
> which the market has "discovered" for the day.
>
> One very important point to remember here is that some days do NOT
> have value areas. There is no "fair price" or central tendency for
> the day. The days which lack a value area are typically wide range
> days on which the market shows a strong, day-long trend in one
> direction. Occasionally days without a value area are wide-range
days
> on which the market pulls a "U-turn" in the middle of the session
and
> then develops a strong trend in the opposite direction for the
rest
> of the day.
>
> Once one has learned to identify days which have a value area,
> Steidlymayer's main axiom is that the trend of the market is just
the
> trend (if any) exhibited by successive value areas. My observation
is
> that in most trends the market will show occasional days with
value
> areas moving opposite to the underlying value area trend, but
rarely
> will this happen on two successive days.
>
> The value trend is important. Steidlymayer liked to observe that
all
> the good traders he knew traded value, not price. In other words,
> traders who thought in terms of value areas were happy to fade
> reactions against the trend which carried back to or below some
> prviously established value area. They were the opposite of trend
> followers. One would often observe these value traders fading
> breakouts in appropriate situations rather than going with them.
>
> Of course it is helpful if one can learn to anticipate the end of
a
> value trend in one direction and the emergence of a new one in the
> opposite direction.
>
> One approach to this is to look at the market's value areas in
longer
> time frames, e.g. weekly or monthly. I personally have found this
> quite helpful and simple to do.
>
> Another idea that works in all time frames is to look for what
> Steidlmayer called price "excesses" or "rejections". He always
said
> that the single most effective trading idea is to trade in the
> direction of the most recent excess.
>
> Price rejections or excesses typically take one of three forms.
>
> The most common and visible is what I call the false breakout
> excess. This happens when the market breaks past a previously
> defined high or low, but not by too much and then runs rapidly in
the
> direction opposite to the breakout.
>
> The second form of rejection is the V or U top or bottom - the
market
> has a fast move in one direction, then another equally fast or
faster
> move in the opposite direction (in the case of the U reversal
these
> two moves are separated by a period of dull or narrow ranges).
>
> The last form of rejection doesn't occur at the extreme, but takes
> the form of an obvious acceleration in the trend away from a
recently
> established extreme.
>
> I typically use unusually wide range bars to recognize these three
> types of rejections. Most, thought not all, trends begin with a
> rejection.
>
> Carl
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