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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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Mature Balance Area - see Balance Area Maturity

Market Profile® - charting technique (price vertical, time/activity horizontal) devised by J. Peter Steidlmayer, a trader at the Chicago Board of Trade (CBOT), ca 1959-1985. Market Profile is an analytical tool; analysis of the key reference areas spawned from the Market Profile® graphic assists the trader to identify optimum trade location i.e. where to do business on the chart.

Market Profile® Trading - a methodology based on using the information and key reference areas spawned by the Market Profile® graphic to consistently and impartially depict the market structure and market development across mult-timeframes and various levels of volatility and assists the trader to identify optimum trade location i.e. where to conduct business on the chart whilst minimising capital exposure.

Multi-Timeframe - observing the price activity of the larger timeframe (e.g. Monthly or Weekly charts) in order to execute trades on a lower timeframe (e.g. 30min or 5min charts). Price activity is influenced by a broad array of motivated participants functioning within multiple timeframes. The shorter timeframe market participants desire a fair price whilst the longer timeframe market participants desire an advantageous price. The multi-timeframe approach helps a trader to answer the question “How do I objectively identify trend direction?” and “Is the trend in the early stage or late stage?” It is a key factor to the trade plan that identifies high probability trade set ups with minimal capital exposure since that trader looks for the larger time frame reward with the lower time frame capital exposure.

The trader should focus their analysis on the migration of value across the multiple timeframes ahead of attempting to figure out who are the market participants. Nevertheless, the different participants have varying perspectives and be can labelled in the order of their perspective timeframe as follows:

  • Scalpers - intra-day traders scouting for fast, small profits at regular intervals mostly relying on order flow momentum. Today most scalping is done under the banner of HFT.

  • Day traders - intra-day traders who usually rely on technical analysis to open positions that they will close out by the end of the session. day trading can be an emotional rollercoaster as a trader constantly shifts from the left-brain role of analyst to the faster paced right-brain role of trader executing at the hard right edge with capital being exposed several times per day.

  • Short Timeframe - short term traders perspective is usually 3 - 5 days up to a few weeks, subject to market context and volatility, allowing them to trade larger swing positions. They also differ from day traders in that they may rely heavily on fundamental analysis.

  • Intermediate Timeframe - this perspective that entails weeks or months of price activity and their dominant entrance to the market can cause significant loss to the uninformed shorter timeframe trader; their analysis consists of a combination of fundamental and technical analysis.

  • Long Timeframe - this perspective entails holding positions for months or years; they act sentimentally more like investors than traders. Their analysis is based primarily on fundamentals followed by valuations, and finally, if at all, technical analysis. When the Long Timeframe Market Participant enters the market with force, they move markets out of balance dragging all other timeframe participants along for the ride.

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