Anomalies: An anomaly in trading is when a price or a set of prices stands out because they don’t fit the usual pattern in the Market Profile®. These anomalies show a kind of weakness in the market structure. Being able to identify these anomalies is important as it helps you understand what they reveal about the market.
Auctions: The fundamental process of how markets move, encompassing both upward and downward price movements.
- Compound Auctions: Multiple auctions occurring within a larger auction framework.
- Long-Term Auctions: Auctions that occur over a longer time frame, reflecting broader market trends.
Asymmetric Opportunities: Trading scenarios where the potential reward significantly outweighs the risk.
Balance: A market state where supply and demand are in equilibrium.
Balance Areas: Zones where the market has spent a significant amount of time, indicating a balance between buyers and sellers. A balance area in trading can vary depending on the trader’s perspective. For a day trader, a balance area might be a short-term pattern like a ‘ledge’. For swing traders, it could be a period of several days where the market shows overlapping value. Long-term traders might view a major bracket as a balance area. Essentially, a balance area is a range where the market seems to be stable and prices overlap over a certain period.
Brackets/Bracketing Market: A trading range where the market is consolidating.
Intermediate Term Brackets: Shorter periods of market consolidation within a longer-term trend.
Breakout: When the price moves outside a defined support or resistance level, indicating a potential new trend or direction.
Buying Exhaustion: A situation where buying activity decreases, suggesting a potential reversal or pause in an upward trend.
Confidence: The market’s sentiment, often reflected in the decisiveness of price movements.
Consolidating Market: A market that is in a state of consolidation, often characterized by range-bound trading.
Context (Importance of): The broader market environment or circumstances that can impact trading decisions.
Convergence: The process where different market indicators or signals start to align, suggesting a potential trading opportunity.
Conviction: The strength or confidence behind market moves, often reflected in volume and price action.
Correction: A reversal in the prevailing trend of a market, is usually temporary.
Day Timeframe: The trading activity that occurs within a single trading day.
Distribution Curve: A graphical representation of market data (e.g., prices or volume) that often follows a bell curve pattern.
Diversification: The process of allocating investments among various financial instruments to reduce risk.
Excess: A market condition where an extreme price movement occurs, often signaling a reversal or end of a trend.
Fair Value: The estimated worth of a trading instrument based on its market conditions and fundamental data.
Fundamental Information: Market data based on economic, financial, and other qualitative and quantitative factors.
Gap: A break between prices on a chart that occurs when the price of a security makes a sharp move up or down with no trading occurring in between.
Imbalances: Situations where there is a significant difference between buy and sell orders, often leading to price movements.
Initial Balance: The range established during the first hour of trading, used as a reference for the rest of the day.
Intermediate-Term Auctions: Auctions that occur over a medium time frame, reflecting intermediate market trends.
Inventory Imbalances: Disproportionate levels of buying or selling interest, often leading to price adjustments.
Irrational Behavior: Actions by market participants that do not align with rational decision-making or fundamental analysis.
Liquidity: The ease with which an asset can be bought or sold in the market without affecting its price.
Long Liquidation: The process of selling long positions, typically in response to a downturn or anticipation of a downturn in the market.
Market Condition: The overall state of the market, which can include trends, volatility, and other market dynamics.
Market-Generated Information: Insights derived from the analysis of price, volume, and other market data.
Market Profile: A statistical tool that displays price and volume data in a way that highlights key market levels and structures.
Momentum Investing: A strategy based on the continuation of existing market trends.
Multiple Timeframes: The practice of analyzing several different time horizons in market data to make more informed trading decisions.
Neuroeconomics: The study of the brain’s role in economic decision-making.
Neutral Day: A trading session in which the market shows no significant directional movement.
Noise: Random or irrelevant data that can complicate the interpretation of market information.
One-Timeframing: A market condition where the market consistently moves in one direction for several time periods.
Openings (Types): Various patterns in how a market opens, each with different implications for the trading session.
Point of Control (POC): The price level with the highest trading activity in terms of time over a given period. It is also called as equilibrium point or fair price for the day.
Poor High/Poor Low: In Market Profile, a “Poor High” or “Poor Low” refers to a market condition indicating a lack of completion at either the high or low end of a trading range. This situation occurs when there is an absence of excess, which is typically a sign of completion in a market auction.
- Poor High: This occurs when the market’s high price for a given period shows a clustering of TPOs (Time Price Opportunities) without any significant tail or taper at the upper end. This indicates that the buying activity was abruptly cut off, leaving a blunt, unfinished high. In Market Profile terms, this suggests that the market may not have fully auctioned and explored higher prices, leaving the potential for future upward movement if new buyers enter the market.
- Poor Low: Conversely, a Poor Low is characterized by a clustering of TPOs at the lower end of the range, again without a significant tail. This reflects a situation where selling activity was abruptly halted, suggesting that the market might not have fully explored lower price levels. This could indicate the potential for future downward movement if new sellers emerge.
Price Acceptance: This occurs when the market validates new price levels after a significant move away from the previously established value. If the price movement slows down, allowing volume and Time Price Opportunities (TPOs) to accumulate at these new levels, it indicates that the market has accepted this new price. An example of this is when a market opens within a price spike created during the previous day, which signifies confirmation and acceptance of that price area. If the market continues to open in the direction of the spike, it implies that the probe for new value isn’t over, and the market is likely to continue auctioning in that direction.
Price Rejection: Conversely, price rejection happens when the market does not validate new price levels and moves in the opposite direction. For instance, if after a buying spike, the market opens below the base of the spike, it is a rejection of the upward price probe. This rejection indicates that the market participants do not find value at these higher prices, leading to a potential reversal in the price trend. Price rejection can also be observed through gaps, where the market jumps over a price range, leaving an “invisible tail.” These gaps indicate swift price rejection and are a strong, though less obvious, form of excess. They provide reliable indications of the market’s directional conviction.
Pullback Low/ Rally High: Applicable to trend days and is a late afternoon price migration against the prevailing trend. During a trend day, there is usually one-afternoon inventory adjustment; the pullback high or low is the extreme of this inventory adjustment. On the following day, the pullback high or low is used to determine if there has been any meaningful change relative to the previous day; if the pullback high or low is not violated, there has been no meaningful change in the opposite direction of the prior day’s trend.
Range Extension: The movement of price beyond the initial balance or opening range.
Reference Points: Specific prices or levels that traders use to make decisions or gauge market sentiment.
Rejection: A situation where the market fails to sustain movement beyond a certain price level, indicating a potential reversal or change in sentiment.
Responsive Activity: Market behavior that responds to reach equilibrium, often seen in range-bound markets.
Reversion to the Mean: The tendency for prices to return to their average or mean over time.
Scalper: A trader who makes numerous trades for small profits over a very short time frame.
Short-Term Markets (Analyzing): The study of market data and trends over short periods, typically for day trading or short-term speculation.
Short-Term Traders: Investors who hold positions for a short duration, focusing on quick, small gains.
Short Covering: The buying of a security to close a short position, often leading to upward price pressure.
Spike: A sudden and sharp movement in price, often signaling a significant market event or shift.
Swing Traders: Traders who hold positions for several days or weeks, aiming to profit from price swings within this timeframe.
Symmetry: The concept that market patterns and behaviors tend to be mirror-like or have balanced counterparts.
Tail (Selling): A market condition characterized by a sharp downward movement in prices, often at the end of a trading session.
Time: A critical component in market analysis, referring to the duration over which market data is considered or trades are held.
Timeframes: Different periods for analyzing market data, ranging from intraday to long-term trends.
Time-Price Opportunities (TPOs): Segments of trading activity based on price and time, used in Market Profile analysis to understand market dynamics.
Top Down: An approach to market analysis that starts with larger, macroeconomic factors before examining specific securities or sectors.
Trading Bracket (Example): A specific price range in which a security trades, used as a reference for potential breakout or breakdown.
Trading Range Market: A market that is neither trending up nor down but moving sideways within a specific range.
Trend/Trending Markets: A market that is consistently moving in a particular direction, either upward or downward.
Trend Day: A trading session where the market shows a strong, unidirectional movement throughout the day.
Value: The perceived worth of a security or asset, often based on fundamental analysis and market conditions.
Value Area: The range of prices where a majority of trading activity has occurred, typically encompassing approximately 70% of the day’s volume.
Value Investors: Traders who focus on acquiring assets they believe are undervalued by the market.
Volume: The number of shares or contracts traded in a security or market during a given period, an important indicator of market activity and liquidity.