Sunday, February 13, 2011

Market Profile-->TOS Monkey Bars

It is not often that I find a new tool that I am super excited to add to my tool box. But recently TOS released what they refer to as Monkey Bars. Monkey bars are based off the principles of Market Profile, which was origanally developed by J. Peter Steedlmayer in the 1980's in conjunction with the Chicago board of trade. Back when futures were not global, market profile was a way to tag where prices went off in each 30 minutes of the day. In short they basically used letters for each period and by the end of the trading session you would have a distribution of prices for that trading session. But as the session went on you could start to see what Peter deemed the "fair price" or the mean that all the other trades would trade above and below, think of a normal distribution. The basic idea is that as the session developed you would be able to identify TPO's (time price opportunities) where unfair prices would become obvious, trades that were out of the value area (where 70% of the volume had gone off). And basically depending on your motives in the market you could take advantage of opportunities using Market Profile. Although market profile is not a trading system, its principles and visual representation are a great way to view the markets in my opinion and very intuitive. Before this I had been convinced that candle stick charts were the best way to view price action or the "auction process" until watching the brief demo of Monkey Bars the other day. I have started to read the 346 page PDF that is on the CME website for free on the original principles behind Market profile. You can find a brief explanation of market profile and the PDF at the following link:

 Now onto Monkey Bars. TOS and their genius programers developed their version of market profile based on the original concepts with some modifications to adjust for a market that is now open almost 24 hours a day. The original market profile used letters to distinguish a change in period, where monkey bars uses 0-9 and then a color coating scheme with 10 different colors. Lets take a look at a few basic Monkey bar charts the most closely resemble the original market profile concept.


Chart specifics:
1) First trade of the session is highlighted with a orange rectangle.
2) Color represent the following trade sessions: Purple (After hours of main US session), Blue (Asian 
    Session), Pink or flesh color (European session), Grey and Yellow (US session).
3) The solid Yellowish bar represents the "Fair value" or mean. This is what TOS refers to as the Monkey
     bar as price likes to hang around this area. Also refered to as the point of control. Think mean reversion.
4) Highlighted grey/black section represents the value area. TOS refers to this section as the play ground.
    This is where 70% of the trades are taking placed based on volume.
5) Trades outside the value area are considered unfair.
6) The little Orange triangle represents where the last trade took place for that session.

 The above chart is 30 minute chart showing the last 5 sessions of the March crude contract. Now focusing on Fridays price action for a moment...notice how during the US session (grey) that period 6 and 7 were testing for a bottom around $85.10. Then period 8 shows us that the sellers have been exausted and crude begins to trade up as buyers come in to correct the "unfair price". Depending on your time frame this would had been a good place to buy with little risk to the downside. Now there is much more explanation for this but to much for me to explain in this posting. If you you want to know more, you will have to read up on this and/or attend the TOS seminars.

Monkey Bars Extended:

 Now this is where the genius of TOS really came in. They programed it so that if you wanted to you could see the market profile in the form of a bar chart while leaving the value area and point of control on the chart. Also what had never been done before is the ability to overlay studies like the volume study that I have in the above chart as well as all the other studies you might normally look at like moving averages, bollinger bands, etc.

 Take some time to compare the two charts, they have the same information, they are just laid out differently. For me studying the second chart allowed me to better understand and look at the first chart.

Anyways that is all the time I have right now to talk about this. But please feel free to ask questions or make comments. I just wanted to put this out there for anyone who may be interested. Like I mentioned at the begining of this post, I am very excited about this new tool. Yet I still have a lot to learn about it, but I feel like I have a pretty solid understanding of the basic principles behind market profile and therefore TOS monkey bars.

Good Luck Trading!!!


Here is a great book you can check out to better understand monkey bars and the market profile:


  1. Hi,
    Thanks for that post, I have spent most of the day trying to figure out monkey bar charts and I think I have a good understanding of how they are constructed, but I need a better understanding of how to use them for trading. Hopefully tos will provide some more archived seminars on using this tool.

  2. Regarding using the monkey charts, I am looking at the 10 day / 30 min chart for ATPG. If one was interested in taking a long position then I am presuming that the Friday closing price may not be a good price because it finished with a single print well out of the fair value range. So I suppose you would want to look for pullbacks to the top of the range, the point of control, or the bottom of the range to see if those levels held before initiating a position. Does that sound like a proper way to use the monkey chart?

  3. Well monkey charts or Market profile is not a trading system. But looking at the 30 min chart from Friday...Depending on your timeframe I would be looking to initiate position at price levels outside the value area or play ground. So looking at Friday's chart the close would not had been a great obviously with todays price action it looks like a great entry, but if I were looking for a place to enter long I would be looking to get long somewhere outside the value area on the downside...So if you look at Friday's price action you could had gotten long at the second 30 minute period (1) around 17.54 and used the prior unfair print at period 1 (0) as your stop at around 17.48. This entry would had given you edge in the trade and a very nice risk/reward trade.

    I hope that helps.

  4. Right, that would have been a good entry on Friday but unfortunately today there was really no good chance to get in, it just shot up during period (1) and never really looked back.


  5. Well I got in to ATPG this afternoon during period blue (2) on a 10 day/30 minute for $18.40. At the time it was below the playground and I was hoping for a bounce back to the playground, but the stock traded lower over the last few hours so now that price is in the bottom of the playground. Not sure what to make of the MB chart after today's close, seems like it is in no man's land between the upper bars of this week and the lower bars of last week.

  6. New to the MB's, but after studying the chart it looks to me like today's move was on a lot lower volume then the strong recent moves up, so if we have reasonable market conditions tomorrow I am going to be that we get a chance to test the upper part of the playground, therefore have placed an order to sell half my position at $18.70 limit, will see what happens.

  7. Dominic that isnt necessarily the case. We must look at the initial balance, which consists of the first two half hour increments. Then we put it into the context of the prior day's "monkey bar" and "playground". The playground is the value area where we would put on a long position if the initial balance breaks outside of yesterday's "playground" 2/4/2011 is a good example of this and was a good long trade.
    Checkout "Markets in Profile" by Dalton

  8. I agree with that. And I am by no means and expert at market profile. But that sounds correct based on the reading I have done. But if you recall the market moves from imbalance, test, and balance again. The point I was trying to make is that Fridays action on ATPG went from imbalance to test (testing the previous days value area), which lead to price rejection in period (0) or the unfair price. All I was saying is that if you wanted to get long you could had used that price rejection as a stop. And if I recall correctly your comment in buying in value is in reference to the longer term trader, who is willing to buy in the value area due to the fact he/she believes that value is going to be hire at a later date.

    I guess when talking about market profile or Monkey bars you have to specify your time period for holding the position.

    But anyways I agree with your comments in general and any further insight or discussion you provide is welcomed and encouraged. I have been reading the market profile material from the cme's websit. But I have also picked up "markets in profile" and Steidlmayer on Markets: Trading with Market Profile, 2nd Edition.

  9. I looked at ATPG and dont understand what you mean when you say imbalanced. On friday it looks like the Initial Balance stayed in the prior day's value area.
    I want to turn your attention to today's action in ATPG. Notice how tuesday's point of control is contained in monday's value area. And Wednesday's point of control is in Tuesday's value area. This is a popular breakout setup with market profile. Using your strategy of buying on a breakout of value works in this situation. There was a strong rally today.
    However I don't consider this stock to be a good trading stock. And I wouldn't use the breakout strat for an instrument based on any index like index futures or ETFs.
    Cool to see you are learning MP! As am I. Let me know if you find anything interesting with these setups.

  10. i would like to know how to set up the monkey bars on TOS studies. there are different settings for each parameter and i do not know which ones to use. I use a 5min and 30min chart for dail trading. I am new to this and would like to know where to start. thank you for any info on this subject.


  11. Dominic,
    Didn't even know this site was here. Fantastic!! I use MB (Market Profile), almost exclusively. However, there is a bug and I can't get anyone to respond. If you use a Normal Session and Intraday, whatever time frame, the Style will not print until that first session is over. No numbers, playground, and no MB. Can you fix that?