Market Profile Trading A to Z | Order Flow | Auction Market Theory | Value Trading | iTradePod

Market Profile Trading A to Z

Market Profile Trading Glossary

Glossary assembled by Andrew Hall, iTradePod. If you have any feedback or would like to see a term added or amended please leave a comment below or contact us.

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A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z


b Shape Profile -occurs during bullish upward moves and develops into a shape similar to the letter b. The top half of the profile is long and thin, typically single prints representing low volume rejection. The lower half of the profile has a more wider distribution. This formation is typical of long liquidations signalling a pause as opposed to bearish sentiments caused by the entrance of Initiative Sellers reversing the market direction.

A b Shape Profile typically occurs as a result of a Long Liquidation where as a P Shape Profile usually occurs as a consequence of a Short Covering Rally.

Balance - commonly referred to as consolidation, wedge, flags, pennents, triangles, trading ranges, brackets, balance areas, congestion areas, and consolidation ranges etc which are all tantamount to the establishment of value and trade facilitation where rotational two-sided trade is taking place within a defined bracket. Balance is fractal, thus, it appears on charts in all timeframes from Tick charts to Monthly charts. These areas on the intra-day chart present fade-trade opportunity galore for the patient and informed day trader. How to trade Balance:

  1. Setup I: market participants extend price slightly beyond prior area of balance.
    How to trade: we wait. In this our tools are order flow and time. We utilise our live Squawk Box feed to determine who is in control of the action on the S&P 500 Pit Floor, is it Commercial, Local or Retail paper. Is this confirmed on our Order Flow charts? We want to see how much time price spends beyond the balance area and whether there are signs of excess to determine whether we will fade this price probe or take a ‘go-with’ approach.

  2. Set up II: market participants extend the price probing beyond the balance area in an attempt at a breakout but is met by aggressive Responsive participants. In this case Initiative participants failed to overwhelm or even match the auction activity of the Responsive participants meaning two-sided trade facilitation beyond the balance area failed.
    How to trade: monitor the order flow for delta divergence and a reversal in COT at the extended prices. Fade the price probe on order flow weakness with the opposite side of the balance being the target whereas structural stop loss is set in the region of the most recent swing pivot zone.

  3. Set up III: market participants probe prices beyond previously established value/balance zone. Price probing is met with the unexpected imbalanced response where aggressive Initiative participants overwhelm weak Responsive participants, initiating a trend. For now, the breakout has been successful since previous value has been rejected and prices beyond previously established value are being accepted.
    How to trade: make a “go-with” approach in the direction of the trend timeframing auction with price acceptance in the direction of the breakout. A heads up is obtained when we identify demand and supply in the Order Flow for execution confirmation. We also have the edge of insider info fed to us via our Squawk Box partner service Traders Audio to discover whether ‘paper’ on the S&P Trading Pit Floor is supporting the breakout.

Balanced Days (including Non-trend days and Neutral days) - the Opening Balance range is short and prices stay contained and there is no range extention. These days tend to develop before the release of high impact market moving economic data or news announcements. Balanced days indicate a market where equilibrium/value region has been established, trade is being facilitated, two sided trade is taking place and/or market participants are awaiting more information.

Balance Area Maturity - the idea behind assessing the maturity of the balance area is so that the trader can recognise and be alert for the end of one phase of the dual auction market development and be prepared for the beginning of another. The 3 characteristics of a mature balance area are as follows:

  1. A prominent area of high volume
  2. A clean Bell shape of a Normal statistical distribution
  3. Value Area is centred

Black Swan Event - a typically random and unexpected occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult to predict. For example, the previously successful hedge fund Long Term Capital Management (LTCM) was driven into the ground as a result of the ripple effect caused by the Russian government's debt default; an event none of LTCM's computer models could have predicted and its subsequent effects.

Bracket - a very well defined trading price range containing market activity within its upper and lower limits such that it provides the disciplined trader with opportunity to timely deploy a Bracketed Buy Order or Bracketed Sell Order.

Bracketed Buy Order - allows the trader to exploit the high probability nature of trading a bracket, balance area, value area etc. A buy order on a long position that is complemented (bracketed) by a sell limit order above the buy long order's price and a sell stop order below the buy long order's price. These three component orders will all be set at a price determined by the trader at the time the order is entered. This type of order allows the trader to lock in profits with an upside movement and reduce the capital exposure of an unexpected downside loss. In some trading platforms, such as Ninja Trader, automatic bracketing can be deployed for emotionless trade execution.

Bracketed Sell Order - allows the trader to exploit the high probability nature of trading a bracket, balance area, value area etc. A sell order on a short position that is complemented (bracketed) by a buy stop order above the entry price of the sell short order and a buy limit order below the entry price of the sell short order. As the three component orders are based on set prices, this type of order reduces the trader‘s downside capital exposure whilst potentially locks in a profit. In some trading platforms, such as Ninja Trader, automatic bracketing can be deployed for emotionless trade execution.

Buying Climax - indicates the end of a bull market auction. It is characterised by Initiative Buyers auctioning the price higher into brand new territory after a substantial upward market rotation has already taken place. The Order Flow volume is always extremely higher than average and coupled with Delta Divergence or COT Divergence, the higher the probability it is to be a buying climax.

Buying Tail - a sign of buying excess that produces a minimum of two TPO single prints at the base of a profile; a gauge of buyers’ reactions to a lower advertised price opportunity. The greater number of single TPOs that form the buying tail the more aggressive the buyers’ reaction. When previously established value is above current price activity, the buying tail represents aggressive Responsive buying. Likewise, when previously established value is below, the buying tail represents Initiative buying.

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