Below you will find some terms or phrases you might hear us cite from time to time.
Auction Theory: Put simply, the market is an auction. Price is set through a process called “price discovery”. This is where the buyers and sellers will continue to move the market in one direction or another until the opposite force is motivated enough to step in and stop the advance. The market will auction as high as it needs to in order to find sellers or as low as it needs to in order to motivate buyers to see it as “relatively cheap”.
Value: Value to an auction theorist is the price or prices that have the most meaning to the auction. If traders are willing to do business at a given price, that price has “value”. If the auction attempts directionally and fails to build value, it often retraces to prior value references.
Volume at Price: From the perspective of auction theory, price is not as important as how much volume we trade at a price. The more volume traded at a given price, the more significant that price becomes.
Balance: This is an area where the auction pauses before it attempts a directional move. Profiles get really fat and wide when the market is balancing. Think of this like a viper coiled and ready to strike. Markets move from balance to imbalance and back to balance. This is the program….always.
Short Covering Rally: Often seen after an extended down trending market. Market opens and swiftly rallies at or near the open. This is profit taking of shorts and squeezing of late shorts. Short covering rallies run out of steam late in the session and provide good location to reestablish a short.
Liquidation Break: the antithesis of a short covering rally, a liquidation break comes after an extended period moving higher. The market may open and swiftly move lower. The sell-off will end and longs may reestablish positions.
Initial Balance (IB): This is price range of the first hour of trade. The width of the IB and its relation to the range from the prior day is a significant reference to give the trader an expectation of the type of day unfolding, including, but not limited to, the potential range for the present day.
Value Area: In the day time frame this is described as the prices that represent roughly 70% of the total volume for the day. This is the statistical distribution or bell curve.
Value Area High (VAH) & Value Area Low (VAL): When defining a Value Area, the VAH & the VAL are useful reference points to lean against in some contexts.
TPOC (Time Point of Control): This is the most traded price by time on a given session or merged session.
VPOC (Volume Point of Control): This is the most traded price by volume for a given session or composite profile
Unfair High: This is the price furthest away from value to the upside.
Unfair Low: This is the price furthest away from value to the downside.
Poor Structure: This is an auction that trades in a given direction swiftly or with little volume. In this event, the market is not given time to check and see if the prices are fair.
Machine or Algo driven move: Movement in price that has poor structure. Often directional with low volume (or conviction).
Volume profile: A histogram that is drawn on a chart that displays the volume of trade at a given price.
Composite profile: This is a profile that is the composite of several days or weeks of daytime information.
Market profile / TPO chart: A chart where activity is displayed with graphic TPOs (time price opportunities). Each 30 minute session is represented by a letter or symbol for each price touched during that 30 minute session and collapsed to show the statistical distribution of price and value relationship during a given trading session.
Merged TPO chart: A TPO chart comprised of several sessions to allow a trader to see where areas of acceptance or rejection are.
Squeeze: A directional move meant to shake “weak hands” out of positions.
Pull-back: A short reversal in a trending direction that offers an opportunity to enter and continue with the trend.
One-time-framing: Demonstrated as a market that is experiencing either a higher high and higher low or lower high and lower low for each subsequent time frame. Often referred to in the 30 minute time session, but can apply to longer time-frames.
Overnight Session (ONH, ONL): For futures markets in particular, this is the trade that takes place when the market is not open. This is also referred to as the “Globex” session. We use the overnight high (ONH) and the overnight low (ONL) as reference points in the day time frame.
High volume node (HVN): This is an area of price and volume accumulation. Represented on the profile histogram as a “peak” to denote trade accumulation at a given price. The larger the “peak” the more business was conducted at that price and it is seen as an area of price agreement among participants. Trade typically slows around HVNs.
Low volume node (LVN): This is an are of price rejection. Represented on the profile histogram as a “valley” to denote trade rejection at a given price. The deeper the valley, the less business was conducted at that price. Trade can move swiftly across or reject around LVNs.
Day Timeframe Trader (DTF): A market participant that comes into the day flat and leaves the day flat. This participant respects daytime reference points.
Other Timeframe Trader (OTF): A market participant that may come into the day already in a position and may hold a position for days, weeks, or months. This participant does not respect daytime reference points. It is the OTF that is responsible for big moves in markets. Discerning OTF presence on a given day is a key edge for any trader.
Initiating Activity: Viewed as new activity or price discovery. This is the trader who is using price discovery into “new territory” to see if others will join and help establish “value” somewhere else.
Responsive Activity: This is the trader who takes a “counter” position as the auction moves back toward a prior value reference.
OAIR: Open Auction Inside Range is an open type where A and B period overlap inside the prior range. Indicative of lack of directional conviction.
OAOR: Open Auction Outside Range is an open type where A and B period overlap outside the prior range. Typical when we gap and then pause.
HWB: Half Way Back is when the auction retraces half of its range. This is indicative of an auction losing or without directional conviction. Directional markets do not retest HWB in the same session.
GAP: A gap occurs when the current session opens in an entirely different range of prices than the prior session. A “gap” is not simply the distance between the open and prior close unless that open takes the auction to entirely new range of prices. Gaps are an indication of market conviction. Be very cautious “fading” gaps.
Throughout the trading journey, most can use a “boost” at one time or another. A free one-time “insight” session is your chance to get past a current challenge and get some “grit” under your tires.
