Market Profile & automated trading strategy

• 11/28/2016 at 5:02 PM #17395
  jonjon

  Hi

  I’m looking to develop a strategy that I have seen manually traded. It is a breakout strategy and the final condition before triggering a trade is that the price is outside of the Value Area (i.e. for a long trade the price is above the range that accounts for 70% of the trades for that day).

  I’ve contacted PRT and have been told that it is not possible to build Market Profile in as a further indicator in a trading system.

  Have any of you thought about MP in your strategies and a possible work-around for this? The only thing I could think of is using a % of the price range of the day:

  c1 = close > (((DHigh(0)-DLow(0)) * 0.7)+DLow(0))

  1	c1 = close > (((DHigh(0)-DLow(0)) * 0.7)+DLow(0))

   

  …but this is only an approximation and doesn’t really show the same as being outside of the Value Area.

  Any thoughts appreciated.

  Thanks

  

  jonjon

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  11/28/2016 at 5:40 PM #17396
  Wing

  Interesting.

   

  Can’t you make use of volume, if you have that available?

  

  Wing

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  11/28/2016 at 5:56 PM #17398
  Nicolas

  The Value Area don’t have need of volume, since it is only the 70% (68% rounded) price distribution of the selected period over its mean. I’m not a market profile specialist myself, but this is what I have in mind about VA.

  Please find attached my own representation of the Value Area (don’t know if it’s ok though, I got no other comparisons right now.. I should investigate more 🙂 )

  jonjon wrote:

  …but this is only an approximation and doesn’t really show the same as being outside of the Value Area.

  I’m not following you on this point, could you please explain? Thanks.

  1 user thanked author for this post.

  Wing

  

  Nicolas

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  11/28/2016 at 8:08 PM #17413
  jonjon

  Hi Nicolas

   

  I’ve always understood the VA to be based on the volume distribution rather than price. I’m also new to MP. On further reading I see that you can base it on either and you can switch between the two ways of calculating in a number of charting packages. There is no right or wrong way. Then the area is 1 standard deviation (or 68% as you said rather than my 70%) range around the mean.

   

  I’m interested in the volume distribution as you could have an instance where on 1 lot trades at the high and/or low however the vast majority of the price auction action is around a range inbetween. I am then interested when the buying and selling is exhausted in the VA and the price is able to move away (or break out) from this area.

   

  What I meant by: “this is only an approximation and doesn’t really show the same as being outside of the Value Area” as my small line of code relates to an approx of the price distribution rather than volume.

   

  However, I like your attached picture. Is this a bespoke indicator you coded? It’s a bit hard for me to see clearly. Do the upper and lower bands represent the VA for the day based on the price distribution? I.e. 34.1% above and 34.1% below the mean price for the day? Any chance you could share the code? This could be a neater and more precise way instead of my clumsy line of code. It could be an alternative to it being based on the volume distribution if this is not possible to integrate.

  

  jonjon

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  11/28/2016 at 8:33 PM #17415
  Nicolas

  Yes this is a bespoke indicator coded for this topic, here is the code:

  mean = (Dhigh(0)+Dlow(0))/2 valuezone = (DHigh(0)-DLow(0)) * 0.68 lowerVA = mean-valuezone/2 upperVA = mean+valuezone/2 return lowerVA,upperVA, mean

  1 2 3 4 5 6

  mean = (Dhigh(0)+Dlow(0))/2 valuezone = (DHigh(0)-DLow(0)) * 0.68 lowerVA = mean-valuezone/2 upperVA = mean+valuezone/2   return lowerVA,upperVA, mean

  About the price breakout of the Value Area, this is one of the possible use of the indicator, if the price is escaping the VA, the price is “imbalanced” (looking for its new mean and trending). When it is between the VA, the price is “balanced” around the mean, so in a range market.

   

   

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  Nicolas

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  11/28/2016 at 8:46 PM #17416
  jonjon

  Thanks Nicolas. Very useful. Mucho appreciated

  

  jonjon

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  11/28/2016 at 10:24 PM #17426
  Nicolas

  Would you mind tell us how do you plan to use this VA indicator? Maybe we can help more! Thanks.

  

  Nicolas

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  11/29/2016 at 10:37 AM #17458
  jonjon

  Will do Nicolas. I’m just trying to fix the exits (I’ve got PRT looking at something). Entry is quite simple: buys (or sells) when have an up bar, ADX above 20 and EMA[20] above EMA[40]. It used to add my line of code which I put above but I’ll insert you indicator.

   

  I’ll post the completed code on the site when done

  

  jonjon

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