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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Open Auction - type of open where price rotates around the open price without any clear conviction. This type of open exists in two forms: Open-Auction-within-Range and Open-Auction-outside-of-Range.

Opening Balance - commonly known as the Initial Balance. Defined as the price range resulting from market activity during the first two TPOs (thirty minute time periods) on the Market Profile® graphic. This definition found its basis when early on particularly in a non-conviction session, Locals operating within the intra-day timeframe, would use their dominance to attempt to auction the market higher until they encountered the Responsive Longer Timeframe Sellers above. Having located the upper boundaries of their initial price probing, the Locals would then reverse course and begin to auction the market lower in an attempt to locate the Responsive Longer Timeframe Buyers below; similar to how a trader would trade a bracketed market. This usually took place within the first two TPOs and once this was achieved the opening balance (or bracket) was established. However, Auction Markets have evolved and, with the advent of the huge overwhelming volume presented by Off-The Floor High Frequency Trading, the days of Locals being able to exert dominance over price action appears to be in the past.

In light of this, we pay more attention to the height of the range of the opening balance and consider it within the broader market contextual conditions around it so as not to become compartmentalized and restrictive in using it to trade successfully. Longer timeframe context is essential in assisting the trader to crystalise the important market activity that is occurring on the shorter time frame.

It is also important to note that on Trend or Full Gap days there is no balance so the Opening Balance is of little use other than as a region to see that price finds support above it and resistance below it. The traders should avoid the distraction of waiting for an Opening Balance to be established in an attempt to fade what is an obvious trending market dominated by the Longer timeframe participants. This is why we emphasise the importance of understanding how value is migrating because it will then become clear which timeframe participant is dominating price action and, hence, determining the market’s structural behavior. The trader needs to determine what is the market’s perception of value in order to have a high probability of identifying optimum trade location at the extremes of the value area.

Outside Day - market participants test one extreme of the prior candle, fail to follow through and then initiate a breakout in the opposite direction. Thus, extention occurs beyond both the High and Low of the previous candle.

Open Drive - price moves directionally right from the open. Usually signifies the presence of the Longer Timeframe Market Participant who is dominating price action with conviction. However as with everything else, this needs to be considered within the broader context of where price is in relation to value.

Order Flow - refers to the nature of how market orders are entering into the market and where they are being filled; executing AT the offer or ON the bid. Order Flow reflects the dual auction process at the most micro-level. Assessing key aspects and patterns of Order Flow (such as Delta , Cumulative Delta, COT, Delta Divergence, COT Divergence and Cumulative Delta Divergence) in real time can inform the trader how well trade is being facilitated in any given direction, an important insight in Auction Market Theory. Tracking Order Flow allows the trader to determine whether it is the sellers or buyers who are more aggressive in the auction at a particular price and point in time. Aggressive Buyers buy at the Offer/Ask price and aggressive Sellers sell at the Bid price.

Order Flow Divergence - see Delta Divergence, COT Divergence and Cumulative Delta Divergence.

Open Interest - the total number of options and/or futures contracts that are not closed or delivered on a particular day and the number of buy market orders before the stock market opens.

Open Rejection Reverse - after the market opens, market participants rotate the price towards a nearby key reference area level, support/resistance, pivot, Virgin POC (VPOC) etc then the opposing market participants take control and reverses the price action and auctions into the opposite direction. This is usually an early indication of a low conviction day.

Opening Range - price range established within the first 2 minutes of trading.

Open Test Drive - after the market opens, market participants rotate the price towards a nearby KRA then the opposing market participants take control and reverses the price action and rapidly auctions price towards the opposite direction.

Overlapping Value Area Regions - a sign of balance or weakness in trend timeframing. Recognising such a hallmark provides the trader with the opportunity to construct a Composite Profile consisting of profiles whose value area overlaps by two or more ticks.

Overnight Inventory Gap - refers to that part of the ETH session which occurs after the RTH session close and prior to RTH open. If Buyers raise Offers above the pClose session during the overnight ETH session and prices remain above it until the RTH open then the overnight inventory would be considered Gap Long. If Sellers lower Bids below the pClose during the overnight ETH session and prices remain there until RTH open then the overnight inventory would be considered Gap Short. By eye-balling the chart, if the price activity enclosed above the pClose approximately equals the price activity enclosed below the pClose then the overnight inventory is neutral i.e. there is no Overnight Inventory Gap. When price activity is balanced during the overnight ETH session, the TPO Count or Volume Profile can be used to determine the underlying ETH sentiment. As a last resort a trader could use the Rotational Factor to gauge Overnight Inventory sentiment.

When devising a strategic and tactical pre-market plan for the session at hand, analysis of the Overnight Inventory Gap is an essential factor.

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