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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Accumulation StageCommercial (as opposed to Retail or Locals) money is buying in to [retail] weakness. Smart Money by no means enters the market buying in huge quantities since this action would lead to offer prices being auctioned upwards. Therefore, commercial/ Long Timeframe Market Participants have to accumulate stock over a period of time, buying when bouts of selling come onto the market. Having bought in the morning, they may have to depress the price by selling enough stock quickly to bring the price back down, but overall they are buying more than they are selling. This is accumulation and is the exact opposite to distribution.

Algorithmic Trading - A trading system that employs very advanced mathematical models for making fast transaction decisions in the financial markets. Algorithmic trading is most commonly used by large institutions such as Hedge Funds due to the large amount of shares they purchase daily. Complex algorithms allow these institutions to obtain the best possible price without significantly affecting the stock's price and increasing purchasing costs via Iceberg Orders.

Anomaly - abnormal profile structure, typically at a single price or level, recognised by its makeup in the Market Profile® graphic which is wanting the desired smooth symmetrical distribution.

Arbitrage - simultaneously buying in one market and selling in another for short-term gains.

Auction Completion - most commonly identified by ‘excess’ represented by a swift opposing auction in the opposite direction of the most recent auction high or low. Auction Completion is fractal and, thus, is observable on all time frames e.g. it might occur on the short timeframe whilst the auction structure on the longer timeframe has yet to complete.

Auction Failure - market participants test a key reference area extreme, such as the prior Low of Day (LoD) or a Virgin POC, but fail to auction prices in that direction. Subsequently the opposing market participants overwhelmingly auction prices in opposite direction with speed and determination. This typically results in an outside day candle.

We witness overlapping value area regions, auction failures, breakouts and the resulting outside days happening over and over again and is a reliable combination for generating consistent signals.

Auction Market Development - the purpose of an auction market process is to facilitate trade. It is directly influenced by Order Flow and the magnitude of Volume. Buyers and Sellers of all time frames continuously auction the price upwards and downwards evenly raising and lowering the bids and offers. The Market Profile® graphic is the derivative of this continuous auction process. The development has four (the 4th can be absent) stages:

  1. Vertical Price Activity; Imbalance; Rejection; Price Probing; Trend.
  2. Stopping price.
  3. Horizontal Price Activity, Balance, Acceptance, Trade Facilitation, Value.
  4. Retracement or continuation.

Read our Value Trading Basics article for further details and illustrations.

Auction Point - initial tick price that exceeds the price zone encompassed within the Initial Balance.

Abnormal Profile – the fundamental requirement for an ideal profile is a normal, equilibrium (balanced) distribution. A profile (i.e. an auction market) that is in equilibrium will produce a single wide distribution with a conspicuous POC at its head. On the other hand, an Abnormal Profile is the result of an unbalanced market that results in a day that may have more than two distributions where a TPO based POC is hard to define.

Anomaly Repair - a term used to describe what is required to happen to profile that has anomalies in order for it to attain the desired smooth symmetry of a Normal Distribution.

Asymmetric Setup - occurs when the profit potential of a trade manifold outweighs the structural based capital exposure.

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