Positive Thinking and Stress Management for Trading by Daley Personal Development

Positive Thinking and Stress Management for Trading by Daley Personal Development

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A market profile is an intraday (vertical price, time / horizontal activity) charting technique devised by J. Peter Steidlmayer, a trader with the Chicago Board of Trade (CBOT), ca 1959-1985. Steidlmayer sought to assess market value as it unfolded within the day. Steidlmayer’s charts showed a bell shape, thicker at average prices, and activity was reduced to higher and lower prices. In this structure, he recognized the “normal” Gaussian distribution that he had found in university statistics, (3).

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The Market Profile chart was presented to the public in 1985 as part of a CBOT product, the CBOT Market Profile (CBOTMP1) (2). CBOTMP1 included the new data from the Liquidity Data Bank (LDB); end of day offsets, identified by merchant class in the wells ((1) local, (2) commercial, (3) members completing for other members, and (4) members completing orders to the public). The Profile was proposed as a commercial methodology to use these new data. CBOTMP1 announced Profile / LDB as the way to “Improve Performance”. It is described as “the only variable cost ticker service in the commodity industry.”

The promotional material says that the Profile will be the link between CBOT data and the market. A profile chart will be used to say “what the market is doing”; LDB data is to find the “condition” of the market. As part of the data visualization connection in CBOTMP1, the price of the maximum volume cleared is identified as the Control Point (POC). Following the normal distribution analogy. The central seventy percent of business activity over POC (+/- one standard deviation) is called the “Value Area”.

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The section headings for “CBOT Market Profile, 1986” are:

Using the CBOT Market Profile to Improve Performance Also

The profile: the link between CBOT data and the market

Part I What the Market Is Doing: The Market Profile Graph

Part II The Market Condition: Liquidity Database

Appendix

In 1987 Professor Thomas P. Drinka of Western Illinois University launched the first Market Profile® course at the academy. As of 2010, Western continues to be the primary and only academic institution offering such a course as part of the curriculum. Also

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In 1991, a new and expanded 335-page manual of the CBOT Market Profile, CBOTMP2, (5) was released. In this volume, the first five sections are devoted to profile analysis. The last section discusses the LDB data. Unlike CBOTMP1, there is no emphasis on a Market Profile ticker product. In the period 1985-1991, the concept of profile caught the public (in a Chicago Tribune article. Steidlmayer was identified as “the man who knows where the market is going”).

Steidlmayer and Kevin Koy started Market Logic School to teach profiling. CBOT gave up marketing the Liquidity Data Bank directly to the public (CISCO Futures became its provider). Public access to tick data was greatly increased so that profiles could be built during the day (LDB data was still at the end of the day). It became clear that the days of pit trading were numbered. In 1991 it was obvious that the focus was on profile technology. And less on the database used to support calculations. Hence the change in emphasis on profile versus LDB data in CBOTMP2.

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In both CBOTMP1 and CBOTMP2, the “Market Profile” appears in the name, but it is difficult to find a definition of what exactly a Market Profile is. Many, many examples are given in both publications. A functional definition of Mind Over Markets (9) is: “market price activity recorded relative to time on a statistical bell curve”. To this would be added a definition of the price and the marker, a “TPO” (price-time opportunity), with TPO defined in CBOTMP1 as: “opportunity created by the market at a certain price at a certain time”. For example:

101150 A A = 08:00 to 08: 29101125 AB B = 08:30 to 08: 50101100 B C = 09:00 to 09: 29101075 BC

Letters identify time, as does position (A in one column, B in the next, etc. A, B, C are TPO (that price occurred).

Section headings for “CBOT Market Profile, 1991”

Read the market profile chart

Profiles for long-term trends

Value perception Fuel market activity

Market profile data and the distribution process

Market profile tools to support business decisions

Volume analysis of the liquidity database

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Volume is said to identify signs of continuation or change, to infer directional trade facilitation, but “the volume data, by itself, is meaningless.” The reason given is that “it is essential to know what market participants are doing.” Many “profile reads” are displayed in CBOTMP1 and CBOTMP2, which infer who is exchanging what and what message they are sending. One method, apparently, is to see if the volume increases up or down during the day. It should be noted that the LDB data discussed here is the end of the day. Some time later, CBOT began releasing daylight gaps within half an hour. These clearances compared to the tick data indicate a delay of approximately half an hour. It does not explain how the facilitation of reading trade is performed with delayed data.

At the beginning of the day, the first trading hour creates a range (the Opening Balance). Then, as additional information about the day’s trading continues, certain chart formations, called day rates, are recognized. These formations have names (1), (2), such as ‘neutral day’, non-trending day, trending day, etc. Another concept, the ‘third standard deviation’ or Steidlmayer distribution has been discussed (1) possibly in support of day rates. The Steidlmayer distribution begins when the current, equilibrium distribution goes out of equilibrium (1, p 175).

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