Why do so many directional futures traders seem to lean on this 'market profile' and almost no stock traders do? I'm guessing that with the constant need to shift trade to different products, there's just no time to use such a detailed and analytical tool. But then if it's not needed for directional order flow trading in the first place, why does it seem so popular?
Its well sold esoterics, plain and simple. Order flow implies that the times and sales your broker displays are absolutely displaying all the trades on the instrument, but since there is dark pools, interbanks markets they can't. Amateurs lack the capital for PDT so their gurus/teachers make them stick with futures and because they trade esoterics they a) never have the chance to escape b) they can't trade anything besides what they have been thaught to do in the first place.
I don't use or understand MP but I learned a lot about price and the markets via reading all of Steidlmayer's books. To say he has a deep understanding of price/markets is a gross understatement. A great teacher of markets/trading. I particular like his ideas on 'the you' part of trading.
Personally, I find no use whatsoever for Market Profile. It's based upon VOLUME*, for gawd sakes! *Anyone who's read my rants on "volume" knows how I disdain it. Use of volume won't cause you to make bad trades, but it will cause you to miss some good ones. KISS, baby.
It's based on volume at price points. In other words the just volume at a certain price is the one where traders are most willing to exchange contracts, ie the most accepted price. Then rejection points. The volume you're used to seeing is volume per time bar. Completely different comparison
Not really. Using volume considerations in Market Profile are just as useless/harmful as others*. The ONLY legit use of volume is to see the daily handle in order to evaluate how large a play you can make if applicable. Proper trading is done with PRICE only... volume considerations make for missed opportunities. *Popular notion that it is... I think MACD is stupid also... not that it's volume based. KISS, baby.
My colleague, John Thorpe, started on the floor of the CBOT, he had this to share: Market Profile was created by a Grain Floor Trader to identify visually the same emotion he could hear in the Trading Pits on the computer screen. When the market was quiet, prices drifted, when the market participants were screaming, yelling and red-faced as they were bidding up or offering down the market, the price action was clearly driven by volume. Forex doesn’t post volume, In futures you can trade the short side with equal vigor. In Equities you can not easily trade both sides of the market to initiate a position. You need a two sided market with volume to use Market Profile.
Which goes to my point. A trader's objective is to be "in tune with price"... that's how you get paid. You don't get paid for being "in tune" with some volume consideration... including Market Profile or VWAP. While "price and volume" is the conventional wisdom holy grail of markets and trading... Joe Granville significantly damaged his reputation with his obsession over his own measure of "On Balance Volume". At some point in his "early" usage of it, seem to correlate to market movement. When that calculation went all wonky, Granville stuck with it and continued to defend it... unfortunately to his discredit. Bottom Line on volume.... FUGGETABOUTIT!!