Market activity can be monitored over several days with a
long-term auction chart (hereinafter, "LTAC"); this chart displays
information extracted from daily profile graphics
, and relates to the
activity of the other-time-frame participants. The activity of the
other-time-frame trader is monitored, since that is the trader
responsible for imbalance in the context of day structure.
It is important to note here that both other-time-frame buyers and
other-time-frame sellers can be active in the value area 1) at
different times and at different prices, or 2) at the same prices at
different times. The net result, however, is that one group (buyers or
sellers) dominates, revealing the net flow of orders to the market
that day (Steidlmayer and Buyer, page 21).
One can detect the impact of the other-time-frame trader upon day
structure by monitoring the other-time-frame trader tracks each
day: that is, extreme(s), range extension(s), and TPO count. This
activity is summarized on a LTAC.
The chart below presents graphics of CBOT December 1987 corn futures for
July 20-24, 1987. The other-time-frame trader tracks will now be
identified for July 20.
First, when price is perceived to be sufficiently divergent from
value, aggressive buying at the bottom of the day's price range and/or
aggressive selling at the top of the range may quickly move price back
to value, and single-print ticks may remain at the bottom and/or top of
the graphic. On the day in question, a K-period single print appears at
1776, and D-period single prints appear at 1752 and 1750. For such
single-print ticks to be an extreme, they must occur at two or
more adjacent ticks; additionally, two or more single-print ticks left
at the top or bottom of the graphic during the last 1/2-hour period are
not an extreme, since there was not sufficient time during the trading
session to test those ticks as a potential extreme. Thus, the single
print at 1776 does not qualify as a selling extreme, while the
D-period single-print ticks constitute a buying extreme. Second,
as explained in a previous section, range extension occurs when
the other-time-frame buyer or seller moves the price beyond the initial
balance; on the day in question, there is K-period buying range
extension. And, third, the TPO count is 12-over-23; this TPO
count indicates that other-time-frame traders favored the buying side.
Coding the Long-term Auction Chart
The LTAC displayed in Figure 32 below...
summarizes the July 21-24 graphics presented in Figure 31. The center
vertical fields of the LTAC designate price and value. To the left and
right, respectively, of these fields appear six fields related to the
other-time-frame sellers and buyers. Moving outward from the center of
the LTAC, initiating activity appears first, since it is stronger than
responsive activity. Within the initiating and responsive fields of the
LTAC, the three other-time-frame trader tracks are arranged by their
importance as one moves from the center of the LTAC.
As seen in Figure 31, the value area of July 20 ranged from 1772 to
1760. In Figure 32, this information appears as a vertical line in the
value area field of the LTAC; the date is shown on the left side of the
chart, as well as in the vertical line that represents value. The
other-time-frame tracks of July 21 will now be coded.
First, the D-period single prints in the 1762-1752 range indicate
other-time-frame initiating selling, since they occur within and below
the previous trading session's value area; this extreme is indicated on
the LTAC by a solid under the selling/initiating/ext field. Secondly,
following the initial balance, the other-time-frame trader engaged in
initiating selling range extension beginning in F period; this activity
is indicated on the LTAC by a solid under the selling/initiating/re
field. Finally, the TPO count is initiating selling, since the day in
question is a running profile down day; this TPO count is indicated on
the LTAC by a solid under the selling/initiating/TPO field. Note, that
on trend days and running profiles, an actual TPO count is not executed;
rather, the TPO count is specified as buying or selling, depending upon
whether the day moved higher or lower.
Initiating activity is coded on the LTAC with a "solid ", while
responsive activity is coded with an "X"; this procedure is followed in
order to emphasize initiating activity. Using this procedure, the
activity of July 22-24 has also been coded in Figure 32. As will be
illustrated below, a LTAC is used to read long-term balance and
imbalance.
3-I Days, 3-R Days, and Free Exposure
Certain market conditions suggest that a position may be held for
some period of time at minimal risk exposure. For example, on the one
hand, a 3-I day is one during which other-time-frame tracks
include initiating activity on the extreme, initiating range extension,
and an initiating TPO count; July 20 in Figure 31 is a 3-I buying
day, while July 21 is a 3-I selling day. There is a
propensity for the day following a 3-I buying day -- during which trade
was accommodated, and during an up-trend -- to trade at the current
price range or higher. Similarly, there is a propensity for the day
following a 3-I selling day -- during which trade was accommodated, and
during a down-trend -- to trade at the current price range or lower.
That is, such days may offer free exposure.
On the other hand, a 3-R day is characterized by three forms
of responsive other-time-frame tracks. Although a 3-R day is not as
strong as a 3-I day, it may also allow the opportunity to carry a
position into the next day with free exposure -- provided that it
accommodated trade, and had activity in the same direction as the
prevailing trend.
CBOT Liquidity Data Bank
Figure 19 displays a Market Profile graphic with companion CBOT
Liquidity Data Bank contract-volume distribution. As explained above,
CBOT Volume displays the percent of total daily contract volume
conducted at each tick within the day's range of the contract, as well
as the percent of daily contract volume at each tick that is conducted
by commercial clearing members.
In Figure 33, a cursor is positioned at 5760, the highest-volume tick.
As seen in the window that appears below the CBOT Volume, 12.0% of
total daily contract volume was conducted at that tick, while 13.4% of
contract volume at that tick was conducted by commercial clearing
members. And, as seen in the window that appears below the graphic, the
CTI2 participation accounted for 6.3% of contract volume in value.
Subjective Analysis
In the same way as the market utilizes rotation during the day to
promote trade accommodation, it utilizes rotation on a day-to-day basis.
In the context of market behavior as displayed on a LTAC, market
activity proceeds from imbalance to balance to test day to
imbalance, and so on.
For example, CBOT September 1987 T-bond futures had been balanced for
approximately one month preceding July 16, 1987; that is,
other-time-frame traders had engaged in nearly equal instances of buying
and selling. Then, July 16 was a test day. From July 16 to July 20, the
market remained balanced; another test day occurred on July 21, and
value moved sharply lower on July 22.
Figure 34 displays the LTAC for July 21 through August 3. From July
22 through July 30, the market was imbalanced on the selling side: that
is, other-time-frame traders were primarily sellers. Specifically, there
were 13 forms of initiating selling, compared with only three forms of
initiating buying along with two forms of responsive buying.
Subjective analysis is conducted each day to help one to judge
the likely position of the following day's value area. Subjective
analysis consists of volume analysis, and analysis of commercial
activity.
Volume Analysis
Volume analysis involves five individual analyses, each of
which -- as will now be illustrated for July 30 -- will suggest whether
value on July 31 will be higher-to-unchanged, or lower-to-unchanged. The
five analyses are presented according to importance.
Data are taken from the CBOT Liquidity Data Bank report displayed in
Figure 35. Note, that the report includes the previous evening
session; in the interest of brevity, the analysis will be conducted
herein, so as to assume that the report's data are for the day session
only.
Analysis 1. Total contract volume on July 30 was 460,568, compared
with 338,638 on July 29. Since July 30 exhibited greater trade
accommodation on lower value, lower-to-unchanged value is
suggested for July 31.
Analysis 2. The volume value area on July 30 was 15 ticks wide,
compared with 9 ticks on July 29. Since July 30 exhibited greater trade
accommodation on lower value, lower-to-unchanged value is
suggested for July 31.
Analysis 3. The top five ticks of the graphic accounted for 5.6% of
total contract volume, while the bottom five accounted for 10.6%. Since
there was greater trade accommodation at the bottom of the graphic than
at the top, lower-to-unchanged value is suggested for July 31.
Depending upon the typical daily price ranges of the market of interest,
more or less than the top and bottom five ticks would be used.
Analysis 4. Total contract volume on the top half of the graphic was
27.1%, compared with 70.7% on the bottom half. Since greater trade
accommodation occurred on the bottom half of the graphic,
lower-to-unchanged value is suggested for July 31.
Analysis 5. The volume value area reflects the price range wherein
70% of the day's contract volume was conducted, while the TPO value area
only reflects the price range wherein the market accumulated 70% of the
TPOs. The volume value area reflects actual business.
For the day in question, the range of the volume value area is
8922-8908, while the range of the TPO value area is 8925-8906; this
analysis results in no conclusion, since the two value areas are
symmetrically overlapping. By comparison, if the volume value area were
positioned at a price range skewed somewhat lower than the TPO value
area, then lower-to-unchanged value would have been suggested for July
31; and, if the volume value area were positioned at a price range
skewed somewhat higher than the TPO value area, then higher-to-unchanged
value would have been suggested.
Analysis of Commercial Activity
The analysis of commercial activity involves two individual
analyses. Each of them suggests whether the value area on July 31 will
be higher-to-unchanged or lower-to-unchanged.
Analysis 1. Commercial participation in value amounted to 15.4%,
compared with a usual participation of 13%. Since greater-than-usual
commercial participation occurred at lower value, lower-to-unchanged
value is suggested for July 31.
Analysis 2. Commercial participation in value amounted to 15.4%,
while it averaged 17.9% above value, and 9.5% below value. Since
commercials were relatively active sellers above value,
lower-to-unchanged value is suggested for July 31.
The subjective analysis suggests lower-to-unchanged value on July 31:
four of the five volume analyses suggested lower-to-unchanged value, and
one resulted in no conclusion, while both of the analyses of commercial
activity suggested lower-to-unchanged value. Note, that when these
conclusions are summarized, one should focus upon getting a feel for
what is going-on in the market and interpret the conclusions
accordingly, rather than upon simply adding pluses and minuses.
July 31 began with initiating buying on the extreme followed by
initiating buying range extension that was terminated by D period; the
TPO count reflected initiating selling. Thus, other-time-frame traders
were buying early in the day, but selling was too strong to allow the
market to move higher, and unchanged value resulted. Then on August 3,
the next trading day, the strong selling that had been observed during
the July 22-30 imbalance prevailed, and value moved sharply lower.
miracles,
they are everywhere.............. 
