Tuesday, 25 November 2014

More on Order Flow and Market Profile

Yesterday, a longtime student wrote:
Hi Tom, long time student here with a question. Do you think the new dynamic profiles that your using offers better support/resistance levels than just taking the legacy profile and breaking it up into it's distributions. Also, are you using the stock settings for the volume profile and volume imbalance in market delta or are you tweaking the settings ? For example the Automatic setting for the volume imbalance is 140% but some people use 200-300%. Looking forward to the new book. Hope all is well.

Great questions.

First, lets talk about Market Profile. I use BOTH the dynamic new mMarket Profile that Pete Steidlmayer has developed as a successor to the legacy Market Profile as well as  the legacy Market Profile itself. Why? Because they give me more granular information about support and resistance and where the price is going. I use various timeframes in the dynamic profile to fit the market I am trading. You can see the confirmation of support on the pic below. I then went to my Order Flow chart and saw buying coming in at support and bought the market. Not rocket science.

Dynamic Market Profile takes splitting the Profile a step further. Dynamic Profiles are currently only available in Pete Steidlmayer's software and MarketDelta. I must disclose I am not a fan of Pete's software as it is very klunky and you need to jump around from screen to screen a lot to get information and that's only for a single symbol. MD on the other hand allows me to see everything all at once.

Now lets get to the second part of John's question. How much volume imbalance is volume imbalance. I must say that the default 140% is just not enough for me. I like to see at least 200% imbalance. I describe the techniques I use to decide what to use in the book.

The key in setting all this up is to "see" the order flow and the decision points in a trade.

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