Thursday, 15 October 2009

It's The Pits

How to get the information you need without being in a trading pit.

This was a huge trading challenge and it took me years to figure out how to get this information on a live basis.  (This is the information that allows me to profit each and every year)

To replicate the information I had in the pit, I needed to know the following (in no particular order)
• Amount of volume and whether it was buying or selling – Order flow
• Whether there was any momentum in a particular direction and the short term trend
• Whether we were trading rhythmically and where in the cycle we were
• Where were the areas that buyers and sellers would appear
• What the market structure looked like on previous days and how today’s market structure develops

One of the most ignored aspects of trading is CONTEXT. Without context you cannot correctly understand what information you are getting. One of the first components making up this information is Market Profile (“MP”). I don’t quite use it as Pete Steidlmayer taught me. Instead, I have worked out what required information I can get from MP and now MPs’ only purpose is being just one of a number of combined components I use.

I use MP to visualise the structure I am trading in. I use the previous days’ MPs as well as the current day as it is developing. I look at “value” in the MP sense = acceptance of price.

Another way of looking at value is with moving averages. Correctly used, moving averages give you a lot of information about both trend and value.

I use more traditional indicators such as stochastic, RSI, etc. to give me the cyclical and momentum information, but again, I use them in a different way and construct them differently. A very important point that needs making here is that locals trade in the present. By this, I mean that as a local you are trading what you see now. There is no prediction – you may develop a short term bias from what you see but NO PREDICTIONS. Whatever you think is going to happen, one large order can come in and make the opposite happen, and the trigger a whole lot of other opposite orders.


  1. Hi,

    I was wondering if volume by price is a good enough substitute for market profile?


  2. Would you be able to explain "Whether we were trading rhythmically and where in the cycle we were"

    Thank you very much for your time

  3. Anon 05:45, That's too big a topic for a blog, but basically, I look at how markets are rotating, or not. f they are rotating I look at where they are in the process, higher highs, lower lows. Using range bars or renkos gets rid of a lot of the noise. Once you see the rotation pattern for the period, you can see where you are, albeit, slightlt after the fact.