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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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Liquidity - the ability to enter and exit position quickly because the instrument has sufficient trading order flow volume. Liquidity is very important to intra-day traders.

Locals - active and informed on-the-floor traders who are a member of a stock or Futures exhange trading on the floor of that exchange for his or her own account. The floor trader must abide by trading rules similar to those of the exchange specialists who trade on behalf of others. A Local’s income is derived from two sources; liquidity and position-taking profits. Liquidity profits represent the income that arises (is forgone) from supplying (demanding) liquidity, whilst position-taking profits refer to the gains (losses) resulting from price movements subsequent to a Local establishing a position. The ability of locals on the floor to derive position-taking profits is positively correlated to order-flow related information, and negatively corelated to the presence of exogenous (e.g. fundamentals) information, local liquidity profits and the length of a Locals inventory cycle.

Long Liquidation - usually produces a b shape profile, a long liquidation takes place after an extended up move where some Long Buyers, who entered a lower price, decide to take profits by closing all or part of their position. This is opposed to a genuine Bearish fall that is caused by new Short Sellers taking control of the market. This type of price action is fractal so its occurrence in the day time frame may be coming to an end whilst it has only just begun on the monthly timeframe.

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