Long-term Memory Real-time Profits
By Ernie Varitimos
October 16, 2022
0:00 / 24:11
Long-term Memory Real-time Profits

All right, thanks for showing up to zero days to expiration. This is podcast number 102, and today we're gonna talk about how the market actually has a memory or what I like to call a footprint. And it's a long term memory. It goes way back. So what? What's that all about? What do you mean a memory?

Well, I'm gonna show how that long term memory, that footprint, that price action from a long time ago actually provides actionable trading levels right now in the present, at the present moment, or whenever you are trading. And that's all done through volume profile. Now here, here's the deal. Volume profile, in my view, is pretty much totally misunderstood.

And that's mostly because most people are following a standardized method that was originally born out of market profile, which is a little bit different than volume profile in that it would come up with something that looked very similar. And I'm talking about those bell shape curve, uh, nodes and things that stick on the side of your chart.

And they come out to the side there and they're supposed to show the, the height of volume and so forth. Market profile originally was based only on price, action and ticks, and it had something called time price opportunities or TPOs, which would break the market down into 15 minute segments and then provide well, where that 15 minute segment was spending most of its time, and then it would advance and it would label it with letters and all kinds of other stuff.

It was kind of cool, but from there they came up with all the tenants and basics of what volume profile would be. Eventually, instead of tick data that was replaced with volume, which was proved to be far more accurate. And that's the way most people look at that market profile now is volume profile. Because of its accuracy

. I think tick data would only show about 93% of what the actual detail that you needed in order to see what price was doing and, uh, what that effect was. So anyways, through market profile, they came up with a whole bunch of different terminology that was passed onto volume, Volume profile, things like the, uh, point of control or POC or the LVN and hvn, or the low value node and the high value node, which were these arbitrary points that they would put on the profile that would give it a different color to show where one standard deviation of all of the price action happened, or all of the volume action more, more accurately.

And uh, so they would use these things and then they would, uh, continue with the market profile paradigm and show a lot of these profiles on sessions only. So you would see the profile of volume for that trading session from, in the case of SPY for instance. It would show you only the profile for, from the time it opened in the early morning at nine 30 until it closed at four o'clock.

And that's interesting. That is if you only care about those times, we know that the spy, which is really an ETF that is describing the S&P 500, and the only real thing that captures the full expression of the S&P 500 has to be considered futures. Because futures are around the clock.

Uh, you can trade the S&P 500 through futures 23 hours a day and five and a half days a week. That's literally four times more than you can trade on the SPY or even the SPX. Now, the SPX is a special case. It, it is a calculated index that is calculated based on the pricing of all of the 500 members of the S&P 500.

And then it gives you this. Index that, uh, has no volume. It's only price, and it's only displayed in normal market hours. Now, recently, they've extended that to outside of market hours because they recognize that a lot of, uh, a lot of stocks and other things can be priced that way. And so you have that, but most brokers don't even allow that.