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To: Chris who wrote (8278)	5/7/1998 2:46:00 PM
From: Chris	Respond to of 42787

to all: we are in a consolidating market.. start relying on your oscillator (ob/os) more : ie: stochastic, stochrsi, cci, rsi.. Talk : Puts/Calls : Tech Stock Options \| Previous \| Next \| Respond \| To: Darth Trader (42521 ) From: Dwight E. Karlsen Thursday, May 7 1998 2:25PM ET Reply # of 42543 DT, sideways markets are great, IMO. Nice "predictable" moves. Oscillating indicators like stochastics start working again.

To: Chris who wrote (8278)	5/7/1998 3:00:00 PM
From: Robert Graham	Read Replies (2) \| Respond to of 42787

[Market Profile Topic] While we are anxiously waiting with baited breath for the market results at the end of the day, I thought I would start a mini-series on discussing the "Market Profile" approach. This is an alternative market analysis technique introduced by Pete Steidlmayer and Kevin Koy. What has attracted me to this topic is that I find "Market Profile" to be based on some keen observations of day-to-day market activity that shows itself over time on the tape. This is no surprise since Steidlmayer was a floor trader and one of the floor trader's key tools is price and how it behaves over time. I think a discussion of this topic will provide good insights into market activity that will help both the trader and the aspiring tape reader, where even the learning about the "Market Profile" techniques need not be their goal. In this sense, I see the study of "Market Profile" as helping to provide a framework for a more indepth study of the technical action of the market. I will be quoting and paraphrasing from the book by Kevin Koy called "Markets 101: Insights into Understanding the Inner Workings of Financial Markets". Kevin Koy is the Director of Market Logic School, a curriculum set up around the concepts and use of the "Market Profile" approach to the markets. I will try to review new material that I have presented to make sure that terminology is properly defined and concepts are described adequately. I will be taking this discussion from the perspective of the stock equity market even though these concepts can apply to other markets as well. Any help from all of you that can relate your market experiences to what I am covering here will be appreciated. This is a new topic for me too, even though I can relate my own experiences to many of the conceptually underpinnings of "Market Profile". First, some basic definitions and market observations: Financial markets are auctions where prices "rotate", up and down, advertising for buyers and sellers to facilitate trade. The price of a security continually tests for market acceptance in order to find a balance between buyers and sellers. This involves testing the extreme boundaries of market acceptance, to provide empirical benchmarks to the market participant of what the market currently considers "fair value". At the market open, short term players are not confident of the market which causes volatility in the price of the stock. Soon after the market opens, more dominant participants come into focus. Price discovery follows which after approximately the first hour of trading defines the initial balance of buyers and sellers in an initial price trading range. During this time, net buying or selling activity can quickly upset this precarious initial balance and result in the change of price. By the time the initial trading range is established, there is confidence by the market makers in the current market by their knowing at what price(s) buying and selling activity enters this picture, the extent of this range, and an idea of the degree the market is currently out of balance. At this point, market participants can enter this picture to create an influx of net buying or selling which will cause the price to move directionally to neutralize the developing imbalance. Market participants gain confidence as time passes. Prices that recur overtime represent that which is considered "fair value" by the market. This shows up as contiguous ranges of prices in preference by the market where volume of trading activity occurs, and a rejection of price levels above and below this fair area. This "fair value" established by the market forces facilitates trade. More precisely, it is the discovery process by the market of "fair value" that facilitates trade which over a period of time will move the price to neutralize imbalances that develop in the trading action of the security. Observing clusters of transactions recurring at similar price levels over time leads one to a general understanding of value. Monitoring the value area over time can aid in determining the direction and strength of the trend - whether the market is accepting higher or lower prices. The market is made up of different participants that can be grouped into shorter and longer time frames. It is the entry of the long time frame market player that upsets a market's balance causing the price to move over the short term. Their continued entry in the form of net buying or selling over a period of time will cause the market to trend directionally. The "one time frame market" is where a group of long time frame buyers or sellers dominate the trading activity. The "two time frame market" is where both long time frame buyers AND sellers are actively trading the security. The "one time frame market" moves directionally over time rather than be contained in a trading range. The more the market moves in this fashion, the more momentum it picks up, and the greater the chance is for further continuation. Once this imbalance in the form of a trend has been established, the trend does not subside immediately. In the "two time frame market" price rotation shuts off the currently dominant activity (buying or selling) and at the same time advertises for the opposite kind of activity. Because long time frame sellers sell at sufficiently higher prices, and the long time frame buyers buy at sufficiently lower prices, the day's high-low trading range can be expected to remain contained. Over the course of any week, most markets comprise a combination of one and two time frame modes with the two time frame mode being more common. To understand the condition of a market at any given time, it is important to categorize the market's participants by their time frame and to monitor their behavior. So how is this so far? Feedback, comments anyone? Bob Graham