Price Density

[trendie]

Price Density:

I had this thought late last night about price.

Thing is, all we get is Open, High, Low and Close. Which is fine.
But this info does not tell us about where the price stayed for the majority of the day.
Consider a stock that;
Opened at 1000p,
Closed at 1200p,
had a high of 1300p
And a Low of 950p.

But it doesn’t tell us where the price was during the bulk of the day.
Suppose, during the day of 8 hours (for ease of numbers ,please don’t get pedantic about actual trading sessions!), the price ranged between 1020p and 1040p for 6 hours.
Or if the price spent 6 hours ranging between 1150p and 1200p.

Would such information provide a greater insight about support/resistance, price action, than just the OHLC prices? ( after all, sometimes the High and Low could just be spikes that lasted for mere minutes )

In summary, is there any advantage in knowing where the price spent most of its TIME during the trading day?

Over the next couple of weeks, I am going to get at least 15-minutes intra-day data for FX;
# Divide the day into 10ths (eg, if day range was 120 pips, break it into 12 pip ranges )
# See which 10ths the price spent in relation to the OHLC, and subsequent action the following day.

Wonder if the results will help to quantify support and resistance ranges ?

Has this already been done, and save me some effort? (though I would be probably do it myself anyway)

 

[pogle]

Trendie,

Is Market Profile what you're describing?

http://www.cbot.com/cbot/pub/page/0,3181,1168,00.html plus about 99 million other links if Google is to be believed - which it probably isn't.

pogle

 

[trendie]

Trendie,

Is Market Profile what you're describing?

http://www.cbot.com/cbot/pub/page/0,3181,1168,00.html plus about 99 million other links if Google is to be believed - which it probably isn't.

pogle

bu99er!!

 

[blackcab]

Price Density. I had this thought late last night about price. Thing is, all we get is Open, High, Low and Close. Which is fine. But this info does not tell us about where the price stayed for the majority of the day.

I haven't looked at Market Profile but I had the same idea as you a while ago. I thought about plotting horizontally, for each price level within a certain time period, the number of bars in that period that included that price. The idea would be that you would get horizontal 'activity lines' overlaid on the price chart that you could test to see if they had any S/R effect worth incorporating into trading in the following time period.

I called them activity lines but they don't take account of volume, and they include every price within a bar even though some price levels might not have been hit, or some much more than others. Pretty crude. Still, with high resolution bars like 1m it was worth trying. Doing it with T&S would be more accurate but I didn't have that.

This chart is one random day on the YM but it shows where it's not useful. The 'activity lines' are drawn only for the morning session, the idea being they might be helpful for trading the afternoon session. But in the case of days like this one, where price shoots off somewhere else entirely in the afternoon, it's no help. Including the previous day or even further back might've helped, maybe making older price levels decay to some extent, but I haven't looked at that yet.

Anyway, it's really just a poor man's 'volume at price'.

EDIT: looking at this chart again, maybe it did have some value. The greatest 'activity' in the morning at around 10623 looked like some sort of resistance in the afternoon that was tested twice and failed. Price fell heavily and that level turned out to be the afternoon's high.

 

[dcraig1]

If you are interested in market profile, there are a couple of threads over on ET that are well worth a read. Both started by Bolter - one on market profile, and one on market delta.

IMHO, stock index futures markets and expecially the DAX and a couple of the asian markets definately 'take notice' of market profile levels. This can most easily be seen by watching large size become visible in the DOM around these prices.

In forex, I have no idea if it is of any value.