Market Profile Trading Terms

By understanding basic terms within Market Profile, an emini day trader will speed up their learning process with the Auction Market Theory, also known as Market Profile Trading.

There are many emini trading schools that teach Market Profile Trading. Many are knowledgeable, but most do not have the logic or commitment to trade the nuances of true Market Profile Trading.

A daytraders biggest concern with becoming a Market Profile Trader should be to not trade Market Profile blindly only or with various emini trading strategies, because it is easy to see the price action patterns as they set up. Just like any profession, you’ll need to learn all of the Market Profile terms and caveats of Market Profile Trading before trading real money. Until then, don’t be embarrassed to trade in a demo trading account which is available through NinjaTrader and Trade Station. Day Trading in simulation mode in a demo account will help hone your trading skills and prepare you for the real world of day trading. Then, trading the emini es, S&P 500 using Market Profile will put you in the same league as the institutional traders.

As a Market Profile Trader, you will have a Trading Plan BEFORE the trading day and a Concrete Plan AFTER the first hour of the markets trading as the market profile footprint develops.

Market Profile Terms

Balance Point or Point of Control: (POC) This is usually displayed by a line that equates to the center of a range and where the most activity and volume has occurred during that range. The majority of the time, price, and volume was spent at this price indicating the best value and true value-especially going into economic news reports.

Bell Curve: This term also can be used synonymously for the value area. There are more than one bell curves and value areas to any trading market which is unknown to most Market Profile traders, but not to the institutions or commercial traders, or the Ninja Trader and Trade Station Bell Curve Indicator.

Commercial Capping: 1 ½, 2x’s and 3x’s, the IB (Initial Balance), and used exclusively by Institutions and Commercial traders as Support or Resistance and Profit targets that work to the tick. Do not trade these levels blindly. Make sure you understand the logic to know when to use these levels as support or resistance.

DAY TYPES:

  1. Normal Variation Day: occurs 55% +- of the time
  2. Non-Trend: 5% +- of the time
  3. Normal Day: 4.5% +- of the time
  4. Neutral Day: 28.5% +- of the time
  5. Trend Day: 2% +- of the time, there is about one trend day per month per market and is a must trade day.
  6. Double Triple Distribution or Vertical Day: 8.5% +- of the time. These values should convince you to follow the day type and TRADE WHAT YOU SEE and not what you think. There about 5 vertical days a month per market and is a must trade day.
  7. P Profile Day: Short covering rally that is easy to see and trade. You hear on CNBC about short covering rallies and now here is an opportunity to predict and trade this day type to the tick.
  8. b Profile Day: Long Liquidation in the market where old long positions are exiting the market and not placing new shorts, and sometimes along with locals who have bought too much inventory. We will teach you how to see this day type in advance and trade it to the tick.

Dynamic Day: This is considered to be a trend day that occurs only a few days a month.

Initial Balance: (IB) The first hour or first two trading periods of the trading day for any market. You will have locals or floor traders acting as middle men during this period.

Imbalanced Market: A market that is trending and eventually new prices might be accepted or the market prices will be rejected and it will return to balance.

Long Liquidation: A period in the market where old long positions are exiting the market and not placing new shorts, and sometimes along with locals who have bought too much inventory.

Lower Value Area: The bottom portion of the bell curve or value area.

Low Volume Nodes: (LVN) Levels/price where the lowest volume has occurred at one specific price. Learn how to trade high and low volume nodes, and use software that plots these levels for you automatically, for you may need to go back 6 months to see a node.

Market Profile: (MP) Market Profile is a different way of looking at price and time by visually representing it in a clear, easy to understand graphical manner. As price unfolds over time Market Profile plots both on their own axis forming a developing bell curve that provides a footprint of developing market activity. The footprint is like seeing steps in the sand where someone has been walking. The footprint shows where the market has been and what direction it is taking. This footprint information from Market Profile literally allows an emini day trader to visually see the price action of the market as it unfolds giving them a trading edge that takes the emotion and ego out of trading.

At the core Market Profile is essentially the theory of the market as an auction, a concept that has been around since the beginning of mankind and is the foundation for trading any market whether it is day trading, position trading, eminis, futures, forex, stocks or commodities. By learning how to proficiently utilize Market Profile as tactical tool in real time an emini day trader will have a tactical edge over other traders who trade with indicators alone.

Naked Point Of Control or Naked Balance Points: (NPOC) A balance point where price has not traded since it was created, so it will not be diluted, and will act as a magnet for support or resistance, and to the tick, when market profile is in effect.

Naked Value Areas: Be aware that the institutions and commercials and some emini trading schools, use naked value areas that are left over
from prior days, for they do have value in the present day.

Open Drive: This is best described as a train leaving the station, and if you are not on board, it will be very difficult to get on board; also, it is very similar to the start of a drag race. It is suggested you have an Open Drive Indicator that is available on Ninja Trader or Trade Station. Open Drives are usually news driven, and is the most exciting winning trade an emini es trader will be in. The day trader should be aware of the two nuances of open drives so they can be managed correctly. These are highlighted in our Boot Camp training.

Opening Range: Many traders view the first two minutes of trading as the opening range.

Point of Control or Balance Point: This is usually displayed by a line that equates to the center of a range and where the most activity and volume has occurred during that range. Usually a majority of the time and volume was spent at this price indicating the best value and true value, especially going into economic news reports.

Range Extension: The first hour determines the RE levels and is determined by price not value. Value is more reliable then price so the trader must realize there are many false RE indications throughout many trading days. There must be conviction with RE or the trader will experience many head fakes during trading session. This is the area most market profile traders fail in for they have the knowledge to understand RE but not the logic to trade it. It is suggested to use the Conviction Indicator in NinjaTrader or Trade Station to accurately trade RE.

Short Covering Rally: A period in the market where old short positions are exiting the market and not placing new longs and sometimes it occurs along with locals who have sold too much inventory and are just too short.

Single Prints: Single letters within a profile. Be aware of how many letters and when they occur, for the institutions are aware of this information along with some Market Profile emini trading schools.

Time Price Opportunity or TPO: 30 minute intervals in the market that are represented by a letter that corresponds with price.

Value Area: A calculation where 70% of the trading business is conducted, and thus constitutes being the Bell Curve. Be aware that the institutions and commercial institutions (and some emini trading schools) use naked value areas that are left over from prior days for they do have value in the present trading day.

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Terms Defined:
Balanced Market
Buying Tails or Selling Tails
Bracket
Composite
Demand Area
Developing Value Area:(DVA)
Double Distribution
Failed Range Extension
High Volume Nodes:(HVN)
Initiative Buying
Initiative Selling
Ledges
Minus Development
Naked Initial Balances
Non-Trend Day
Normal Day
Neutral Day
Open Auction
Open Test Drive
Open Rejection Reverse
Profiles
Responsive Buying
Rotation Factor
Rotational Market
Selling Tail
Static Day
Supply Area
Transition
Trend Day
Triple Distribution
Vertical Day