Thursday, July 24, 2014

Good Morning America, How are you?

Yesterday I received an email inviting me to a trading room, where I was promised the person was using Auction Theory and Market Profile.   J. Peter Steidlmayer at the Chicago Board of Trade (now CME) created and presented this idea in 1985 (or so).  As part of my PhD, I studied economics, and in highly liquid markets, I've found no better way to price assets than Auction Theory. 

I do not use Market Profile for day-trading as Mr. Steidlmayer recommended.  I do use the ideas to provide a road map for tomorrow's trading, although I have not expressed those ideas in this blog. 

I joined the trading room at around 11:00 AM PDT yesterday.  The moderator rarely (if ever) used any terms that would be normal in Auction Market Theory.  (However, he may have that in his training material, and this live trading was only a demonstration of the software.)  I asked about some of the TPO terms.  In fact, he was immediately able to bring up TPO charts, but he debunked their usage.  (Dear Reader, a trader is free to do what they want to do.)  While I was unable to decipher how the software was using market profile, I admire his building software to build the support and resistance lines derived (so he said) from Market Profile.  Another admirable thing for day-traders is he did not trade during a really choppy period.  He knew the people in the room were uncomfortable with not trading, but he kept himself and the people from losing because the market did not do what he expected it to do. 

Dear Reader, no position is a position, and it is a much better position than having lost. 

Most modern charting software has Market Profile charts available.  They usually cost more than the base package.  In my opinion, it takes deep study over years to develop a day-trading system with Auction Market Theory.  Do not expect to buy a charting package and be successful.  Instead, buy a mentor that you can live with.

If you are interested in Market Profile, CME has very good material available.  Much of CISCO futures introductory material is free, and their material was very helpful to me years ago.

Would I buy the software, training and live trading room I saw yesterday?  There are many such offerings out there, and your best chance is to choose a person (since that is what it is really based on) that matches your personality type.   When the market is dull (like it was during that period) and since there would be a lot of new traders coming in for the live demo and since several of those would need an introduction to MP, introducing people to market theory (during dull times) would be appropriate.  Otherwise, the charts were horribly cluttered and would take considerable time to learn what all those lines and figures meant.  Again, I admire a moderator and approach that can keep a trader out of trading during a choppy time even though he was trying to sell his software.  It is far more important (if you recognize it) to follow discipline in live trading than trying to over-trade and sell. 

Summary: 

·         I should repeat yesterday's blog entry for yesterday's trading.  S&P Market opens up, chops, moves up, and chops the rest of the day.  If volatility was measured by range, the range was small.  If volatility combined volume, then volume was low.  This is summer trading in a BULL market.

·         IMF lowered its expected growth rate for the USA.  So what?  The stock market in Europe and the USA is up overnight.  Don't worry be happy... Well IMF is worried, but they put a positive spin pointing out they still expect 3% GDP growth next year. 

·         The data cupboard yesterday was nearly non-existent. Today is a different story.  We might see some fireworks, eh?  Jobless claims (already released) show that the labor market may have turned around (unless normal summer layoffs are late).  The 284,000 is much lower than expected.  Market did not make of a move either way on the data, as S&P futures are still way up over yesterday's close.  PMI and New home sales may move the market around 7:00 AM PDT.  Who knows...  The market on a technical basis is way over sold, but that means nothing (absolutely nothing) in a bull market.  It appears for any major correction to take place, a "black swan" event must occur. 

·         No surprises (that I know of) on the geopolitical front today.  The stock market should hold the "up" trend overnight, open higher, and slowly climb the wall of worry. Economic  data could cause volatility, but it appears no normal news reports will move the market, and there is very little Fed watching that is useful this week.