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Old 06-07-2017, 03:05 PM
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investigate Holy Grail Live Testing

Will use this thread to test an automated Market Profile system based on two time frames (Daily and 5 minute), it seems rather too accurate so need more eyes to confirm what I think am seeing and is perhaps the holy grail!
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Old 06-07-2017, 03:05 PM
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The Theory

Since the function of markets is to facilitate trade with the dual auction process (auctioning up until no more buyers and then auctioning down till no more sellers left), the purpose of analysis will be to split the auction process into buying and selling patterns at every level on the micro (order book/market depth) and the macro level (daily charts).


The Framework

The isolated buying and selling patterns when put together into a distribution/trend framework can be used to define and trade the current market state.

The Structure

The underlying structure of any market behavior is it's current distribution pattern which is defined by the excesses at each end, the median and the first standard deviation.

Distributions Development - A distribution/trend begins with a directional move showing increased activity. It then develops with rotations and end with either slowing of activity or excesses made in the direction of the initial move. The goal will be track the beginning, development and end of a distributions and trade them in a low risk manner.

a) Beginning of Distributions
Distributions begin when a trend is started by initiative action from the other-timeframe participant, who perceives price to be away from value in the longer term and think the current levels are either undervalued or overvalued The price level where the distribution activity begins will be termed as demand/supply line or as support/resistance as this is the level that started the initiative activity and is likely to be defended by traders who initiated their trades at the level. This first step is a strong vertical movement up or down that usually starts after an excess (which is why excesses will be the key part of the trading strategy, more on that below). This is a "non-price" control step (and the only step in which we find non-price control), and it represents the best (most profitable) trading opportunity. It occurs because there is a market imbalance; a large shift of capital into or out of the market causes prices to shift rapidly. In terms of the standard bell curve, step one builds the vertical base of the distribution.

An example of start of distributions marked



b) Development of Distributions

The second step occurs when the market finds a price that stops the directional movement, it pauses the market. In terms of the standard bell curve, it is the beginning of the first standard deviation.

The dark grey lines corresponding to green (up distributions) and red (down distributions) show the upper range of the distributions which defines the range where the development takes place.



c) Ending of Distributions (this would be our main focus as trading at the extremes is always easier while trading in the middle of a trend has high adverse excursion)

Distributions end with two patterns -
a. Auction Failures or Divergences or DryUps
As distributions continue to develop, there may come a point where auctions will fail to follow through without bringing in strong opposite reaction. These are auction failures and in technical term can be called divergences or dryups in volume terms. After an auction failure price is often rejected and moves in the opposite direction with speed and conviction, the magnitude of this move depends on the significance of the tested reference points - if there is no conviction in the move in the opposite direction then the failure is considered a timed pause in the original direction which will resume with the trend traders exerting their influence.This kind of auction failure is also called a dryup because this less-frequent type of ending occurs when volume—which is in the direction of the trend—simply dries up, as if the participants that were driving the directional move are “all in” and there is no one left to participate but the other side is not willing to enter the market with full force either. The transition is relatively quiet and calm; the market just sits there, lulling market participants into a state of complacency and stasis.

Here is an example from current Nifty chart



b. Extremes/Single Prints/Climaxes Happen when long term trader enters the market and competes with short term traders for the same trading opportunity . To achieve its primary goal of trade facilitation, the market auctions lower to find buyers and higher to attract sellers. Consequently the market occasionally creates excess by auctioning too far in the given direction

Here is an example of identifying excesses on a chart - the red and green dots signify excesses



As traders, we would like to position ourselves at the most favorable point which offers the greatest risk/reward which is at the ending of distributions which makes identifying excesses the 'holy grail' scenario, the better one is at identifying excesses, the better the risk reward for a trade.

We do that by using TWO

1. Identify Excess - this would be done using the sentiment extremes marked as red and green dots on the chart as shown above

2. Identify Gradual Weakness in the structure - this would be done using mostly price action as there are no definite points like excess points

Trend Explanation Added

Attached Images
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File Type: jpg 2017-07-12_054818.jpg (186.0 KB, 228 views)
File Type: jpg 2017-07-12_055720.jpg (121.7 KB, 177 views)
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Old 06-07-2017, 03:05 PM
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RESERVED FOR CHARTS
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Old 11-07-2017, 11:11 PM
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Waiting for rest to be updated..
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Old 14-07-2017, 09:31 PM
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Today and tomorrow will finish the write up, don't want to post live charts without explaining first as it may lead to confusion
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Old 15-07-2017, 01:30 AM
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Originally Posted by JJ View Post
need more eyes to confirm

Been a while, but found my beepers compelled to be pressed in to service

Originally Posted by JJ View Post
perhaps the holy grail!

Fairly loaded statement! But all the more interesting, considering the source

Hope you don't mind if I stick around to warm the back benches!
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Old 18-07-2017, 09:48 AM
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I will add edits later as am still testing some scenarios, the EOD update is that if yesterday's low is taken out and closes below it, short at will (check market in the last 15 minutes to see if today's close is going to be lower than yesterday's low and initiate positions)
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Old 18-07-2017, 10:36 AM
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This is how NF looked yesterday, breakage of the green line (low made after a sentiment extreme) means long term traders are not defending the level anymore.
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Old 18-07-2017, 10:39 AM
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Intraday NF at 940 am

It's basically two set of levels

Thick lines are long term traders
Thin lines are short term traders

When both point in same direction, we get trends, otherwise it chops.
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Old 18-07-2017, 10:58 AM
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Now both long and short term traders shorting the market
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