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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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Capital Exposure - otherwise known as risk. The potential cost (per unit, lots, contracts, shares etc) of discovering the probability of a successful trading decision outcome and is incurred in the event price that moves against the intial entry price to the initial protective stop loss price.

Carry Forward - a routine of making a note of day timeframe market generated information , (such as locations of VPOCs, CD etc) so that such information maybe used to place future market price activity into a wider timeframe context.

Cash Market - stocks and shares and the Interbank currencies. A future is known as a derivative since the real value lies in the cash market, where actual stocks are bought and sold for cash, or one currency is bought with another.

Clean - at the beginning a of breakout from a balance/value area, if there is no overlap between the two separate Values Areas and the distance that separates the two is wide then we describe this as being a ‘clean’ breakout. A wide distance between balance/value areas implies that a trend is in its early stages of market development and that a continuation in that direction is highly probable.

Closing Range - the price movement range of the last TPO on the Market Profile® graphic. We pay attention to the location of the closing range in relation to the session's Open.

COT - in terms of order flow momentum COT indicates the commitment of traders at new price extremes. It is especially power as a leading indicator when there is a divergence between COT and price.

COT Divergence - an order flow pattern that occurs during trending price activity when the current candle's price has hit a new intra-candle extreme but the volume bias does not correspond with that price activity. For example, this type of divergence between price activity and Bid/Offer transaction volume occurs during an upward trend the current candle's price has reached a new intra-candle High but intra-candle Selling volume on the Offer/Ask overwhelms the intra-candle Buying volume on the Bid. In this instance, it is highly probable that the Low of COT divergence candle will be tested and/or breached before the Close of the next candle. COT divergence also occurs during a downward trend when the current candle's price has reached a new intra-candle Low but the intra-candle Buying volume on the Bid becomes more more aggressive, hence, overwhelming the intra-candle Selling volume on the Bid. In this instance, it is highly probable that the Low COT divergence candle will be tested and/or breached before the Close of the next candle. We also have other high probability COT Divergences setups.

CTI1 - On-Floor Pit Traders, often simply referred to as Locals.

CTI2 - Commercial Clearing Member Traders e.g. agricultural hedgers, banking houses etc, often referred to as Commercials

CTI3 - On-Floor Member Traders executing orders for Off Floor Member Traders.

CTI4 - Member Traders filling orders e.g. for public and mutual funds, often as ‘retail paper’ or simply ‘retail’. Their activity is often faded by the Smart Money. Note: High Frequency Trading (HFT) is not accounted for although it is widely believed that HFT now accounts for a large percentage (over 70%) of the volume in Futures trading.

Commercial [paper] - Commercial Clearing Member Traders e.g. agricultural hedgers, banking houses etc, often referred to as ‘paper’. It is often their participation in price activity, whether it is via High Frequency Trading (HFT) or on the Trading Pit Floor, which moves the market with directional conviction.

Commercial Capping - often referred to as buffering or fading, occurs when commercial traders put a price cap on an instrument after an extraordinary breakout auction.

Composite Profile - merging separate profiles into one, especially when the value areas are over lapping. Once merged, the astute Market Profile® trader pays attention to key reference areas (i.e. extremes, excess, value area range, POC and High/Low Volume area) within the Composite Profile. The key is to recognise the maturity of a composite profile.

Cumulative Delta (CD) - often referred to as Cumulative Volume Delta or just CD, it is the accumulation of Delta across a single session or compound sessions. We regularly use it as a gauge of the underlying order flow to confirm price direction.

An important point is that CD is unlike Open Interest in that it does not account for volume adjusted to reflect the example where some of the volume (e.g. 5000) on the Bid may be Shorts closing their position matching volume (e.g. 5000) on the Offer which maybe Longs closing their position in which case the Open Interest would be zero, however, Cumulative Delta will display a value of of 10,000 and the trader would only realise the reality of what took place by simultaneously displaying a lower timeframe (3 Range Bar for ES) or waiting to see how the next candle reacts.

Cumulative Delta (CD) Divergence - for instance, if price is trending higher, the cumulative delta is expected to be trending higher accordingly e.g.when Buyers auction price to a new high whilst cumulative delta does not, we have CD Divergence; indicating that order flow is deteriorating and price may soon pause and/or reverse.

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