Market Profile Glossary

This Market Profile Glossary is offered for INFORMATIONAL PURPOSES ONLY. It has been compiled from many different sources. To learn more about the Market Profile and the edge traders gain when proficient in its use, we encourage you to explore the works of J. Peter Steidlmayer, Jim Dalton, Dan Gramza, and others. WindoTrader Corporation expressly acknowledges their contributions as helping us incorporate the Market Profile into our trading methodologies.

CBOT Market Profile and Market Profile are registered trademarks of The Chicago Board of Trade and nothing herein should be considered as a trading recommendation of the Chicago Board of Trade.

The Market Profile Glossary in Three Parts

Part-01: Market Profile Terminology

A balance area occurs when value is accepted and price is considered fair. A move out of balance generally requires new information to take the auction to new highs or new lows.

A balanced session is when the market auctions go back and forth from one price level to another but maintains most TPOs in an overlapping range. Also considered balanced is when several consecutive days exhibit overlapping range, and more importantly, overlapping value areas, as the market consolidates within a trading range.

Note – Balance areas provide the trader recognizable areas, where lacking new information, high odd, relatively low-risk trades can be placed with the expectation that price will revert to the center of the range, at minimum, if not to the other range extreme.

Excess, commonly referred to as buy tails, sell tails and single prints, frequently highlights the end of one auction and the beginning of another.

No excess is frequently a sign that the auction in that direction has not been completed or has not reached exhaustion.

The Profile is now shown in its extended form. The IB, or initial balance, represents the first hour of trading and as such is represented by letters A and B together.

Using Central Time, letter A extends from 8:30 AM to 9:00. Letter B extends from 9:00 to 9:30 AM.

Note – WindoTrader clearly marks the IB on every Profile with a vertical line, and is shown here in green to the left of A period. The day’s opening print is the green dot that appears on the IB line.

Long liquidation typically creates the ‘b’ formation or pattern.  The stem of the ‘b’ must initiate the formation or pattern.

The Market Profile is a graphical display of the auction-market process based on market-generated information.

The structure reflects participants’ opinions during the auction process. Price is visually represented on the vertical scale while time is visually represented on the horizontal scale.

The completed Profile shows what happened, when it happened, and who was involved.

This example Profile above shows a day session of the e-mini S&P futures contract. However, Market Profiles can be used for any instrument or trading product from the 30-year bond to Apple stock.

Frequently Profiles are classified in patterns, a b pattern indicates liquidation, a p pattern indicates accumulation and a D pattern indicates balance or consolidation.

Note – Viewing the Profile in the ‘collapsed’ format reveals the bell curve of the distribution: the area where the majority of traders came together to conduct business, as well as the extremes where price was deemed either too cheap or too expensive.

Note – The Market Profile provides a way of organizing market-generated data and is not a trading methodology.

One-time-framing is a term that can be applied to any time frame, 5 minute, 15 minute, daily, weekly and so on. As shown here, it refers to the 30-minute bars. It portrays a directional move as in a trending market.

One-time-framing generally makes higher highs or lower lows, depending on whether price is going up or down. There can be inside bars; they do not end one-time-framing.

The POC is the acronym for Point-of-Control.

The POC is simply the longest row of Time, Price and Volume (TPOs) occurring closest to the center of the range during a session.

The POC is the price where the most trading activity occurred during an entire session and is also considered the fairest price in the session.

A migrating POC indicates directional movement to discover fair value.

Note – WindoTrader colors the POC to easily identify it as the auction develops during a trading session. In the example above the final POC location is the green line of TPOs. The prior migrating POC locations are colored bright yellow.

The term range can refer to a session range, a daily, weekly or even monthly range.

The initial balance, the IB, is considered the first hour’s range.

Range extension is market activity that auctions beyond the IB high and or low and tends to indicate that the longer time-frame trader has entered the market.

When there is range extension the perception is that price was either too cheap, too expensive, or that a news event changed the current fair value.

Our example above shows A period with a fairly wide range, and B period, an inside bar.

Short covering typically creates the ‘P’ formation or pattern. The stem of the ‘P’ must initiate the formation or pattern.

Single prints, including tails, are frequently seen at the top and the bottom of the profile. They are formed by price moving quickly away and require at least two TPOs to be confirmed.

  • A buying tail occurs at the bottom of the range.
  • A selling tail occurs at the top of the range.
  • Tails occurring in the last period of the session are called spikes because they cannot be confirmed by a following time period.

Sometimes single prints are seen separating distributions within a Profile, often either as a double-distribution day or on a trending day.

Note – Single prints on extremes (tails) are important auction terms; they frequently mark the end of one auction and the beginning of another.

Time, price and volume (TPOs) are the three main components of the auction process. Jim Dalton, author of Mind Over Markets and Markets in Profile, states:

  • Price advertises all opportunities.
  • Time regulates all opportunities.
  • Volume determines the success or failure of advertised opportunities.

The value area represents the first standard deviation of a completed session or approximately 68% of the trading activity beginning from the point-of-control (POC),(the mean).

Value develops as the day progresses through each half-hour TPO period.

The 2nd and 3rd standard deviations contain 95% and 99.7%, respectively, of a day’s time, and or trading volume.

Value-area relationships from day-to-day are described as: higher, lower, overlapping, overlapping higher/lower and inside.

Note – Value-area relationships can help traders discern the conviction of both directional and balancing sessions.

Volume areas include high-volume nodes (HVNs), and low-volume nodes (LVNs), as part of the volume profile.

An HVN is a level or area where there was a high volume of trading activity. Conversely, an LVN is a level or area where price moved rather quickly and trading activity was much lighter by comparison.

Note – There is a difference in the value areas. On the left of the above example value is determined by time as in TPOs, while on the right value is determined by the volume of trades executed.

Part-02: Openings and Open Types

Openings in relation to previous value. There are three general opening positions based on the prior session’s value and overall range.

  1. Opening within a prior session’s value area.
    • Favors a more balanced and rotational trading session.
    • Means the current session’s range is potentially similar to that of the previous session.
    • The value area tends to develop inside, equal to or minimally overlapping the prior value area.
  1. Opening outside of a value area but within the prior session’s range, either above or below its value area.
    • This creates a slight imbalance.
    • The range also tends to be similar to the prior day with the value area overlapping either higher or lower from the prior session.
    • Rejection also indicates possible break-out.
  1. Opening outside of the prior session’s range, either above or below it.
    • This typically indicates the market is out of balance.
    • Favors potential moves to key reference areas.

The types of openings tell you what they do by their name. Here is the opening-types overview.

  • Open-Drive Opens
  • Open Test-Drive Opens
  • Open Rejection-Reverse Opens
  • Open Auction-In-Range Opens
  • Open Auction-Out-of-Range Opens

The opening print by location is but one data point. When combined with the auction’s initial activity, an ‘opening type’ is generated. This is useful information in assessing the type of trading activity that might develop.

Open drive opens have a tendency to produce one-time-framing market movement. There is a potential for reversal as the periods unfold.

Open test-drive opens tend to test a key level, or move price in one direction before other time-frame traders reverse market activity. They also have a tendency to exhibit early continuation and range extension as well as increased potential to reverse during the first half of a session.

Open auction in-range opens are inside the previous session’s range and tend to show acceptance and unchanged sentiment. There is lack of conviction in either direction. The value area tends to be inside of, or relatively similar to, the previous value area.

Open Auction Out-of-Range Opens tend to show a market impacted by a change in sentiment. There is potential for both acceptance and rejection during a session.

Part-03: Day or Session Types

Market Profile educators tend to group day types into six or seven different categories. Each day is different and presents varying opportunities. Below are the most referenced day types and some characteristics of each day type.

  • Normal-Day Type
  • Normal-Variation Day Type
  • Neutral-Day Type
  • Non-Trend Day Type
  • Trend-Day Type
  • Trend Multi-Distribution Day Type

Note – Identifying a day type early in a trading session can provide insight into the development of a session’s potential structure.

The normal-day type trading session has an average to above average IB but doesn’t extend far from it, frequently maintaining within the IB range. Distribution is relatively tight around value.

The normal-variation day type has an average IB range and tends to be approximately 50% of a session’s range. IB generally establishes range extension to one side or the other.

The neutral-day type has an average IB range of its range extension to both sides of IB, and typically closes within IB. This kind of day type is considered horizontal development, balance. Buyer and seller are both relatively congruent as value is concerned.

The non-trend day type has a narrow IB range that generally holds throughout the session due frequently to trader anticipation of a news release, or a holiday. This type of session typically has lower volume, lacks directional conviction and presents a D-shaped profile.

The trend-day type usually has a narrow IB base with obvious one-timeframing, minimal horizontal activity, and excess at extreme.

The trend multi-distribution day type usually has a narrow IB along with the development of two or more distributions. Distributions are frequently separated by single TPO prints with the last distribution generally holding through to the end of the session.

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