Glossary

Anomaly

An anomaly is a single price or price levels that lack symmetry, an unusual structural
arrangement in the Market Profile; they represent structural weakness. Learning to spot
anomalies is the first step toward understanding the information that anomalies provide.

Auction process (two-way)

The purpose of an auction is to facilitate trade. Prices constantly auction from low to high and
from high to low to fairly distribute the bids and offers presented by the market participants of
all timeframes. This is the fairest way to allocate prices and contracts among competing bids and
offers; the by-product of the two-way auction process is market-generated information.

Balance

This refers to trading ranges, brackets, balance areas, congestion areas, and consolidation
ranges—all synonymous terms. They define price ranges in the market that are containing
trade. Within these containment ranges reversion to the mean trades are the favourite of short-
term traders. We often refer to these containment ranges as “paradise” for short-term traders.
Bigger opportunities occur as price auctions outside of these containment ranges. Balance
occurs in all timeframes. For shorter term or day traders balance may be an inside bar or
multiple periods of price containment. Balance and excess are the two most important concepts
you will be introduced to because they signify change or the potential for change to take place.

Buying tail

This is formed by single prints (single TPOs) on the bottom of a profile; a gauge of buyers’
reactions to a lower advertised price opportunity. The greater number of single TPOs that form
the buying tail the more aggressive the buyers’ reaction.
Excess

Excess marks the end of one auction and the beginning of a new auction. It is visible within the
two-way auction process via buying and selling tails. Excess occurs in all timeframes; it
completes an auction. There are always multiple two-way auctions at work; one could be
completed while another is still active. Excess occurs in all timeframes. As was stated earlier,
balance and excess are the two most important concepts you will be introduced to because they
signify change or the potential for change to take place.

Gap

A gap is another form of excess. Price moves rapidly away from a prior trading level or
reference; a gap signifies a total reordering in market thinking. A gap is measured from the
previous day’s high or low—not from the settle. A gap signifies a market that is out of balance
and presents a large opportunity.

Half back

This reference is usually reserved for day and short-term timeframe trading and is most
applicable when the day or short-term timeframe is dominating the market. It is also most
applicable during the market’s initial auction; if there are day or short-term timeframe buyers
below the initial rally high, or day or short-term timeframe sellers above the early auction
decline, they tend to surface on a 50% pullback or 50% rally of the initial auction range (high to
low). Throughout the day the half back reference ”floats” as there is range extension; however,
it is still a day and short-term timeframe reference. We stress day and short-term timeframe
because when the market is dominated by longer timeframes they pay no attention to these
very short-term references. It is always important to know what timeframe is dominating since
the trading behaviour will change.

Initial balance
The price range resulting from market activity (generally) during the first two periods. The actual
definition is far less important than the concept; when the initial base of trading is narrow
(reading from high to low) it will be easier to knock over or experience “range extension”. A
wider base will be more stable and better able to contain price.

Some days have no initial balance as the market begins to trend immediately from the opening
range with constant range extension.

Long liquidation

We refer to long liquidation as “old business” because it is reversing earlier long positions. Long
liquidation can actually strengthen a market because it removes potential sellers; you liquidate
an existing long by selling. Similar to short covering rallies, these breaks are against the
prevailing trend and can be sudden and sharp. The old trading adage is that a market may be
too long to go any higher, i.e. “a market has to break before it can rally”. Long liquidation is a
process that adjusts inventory that has gotten too long. It occurs within every timeframe; day
timeframe long liquidation may be over quickly while longer timeframe long liquidation may last
for much longer periods of time.

One-time framing

A trending situation where in an uptrend, the low of the previous bar is not broken to the
downside by 2 tics or more. Conversely, in a downtrend, the high of the previous bar is
not exceeded by at least 2 ticks or more. As these upside and downside situations occur over
multiple bars we identify them as “one-time framing’. One time framing is applicable to all
timeframes, from monthly, weekly, daily charts to the shortest timeframe Market Profile® thirty
minute periods intraday. Recognizing a one-time framing mode can keep a trader from fading a
market at inopportune times while also enabling a trader to employ the most appropriate
strategic and tactical plan for current market conditions.

Overnight inventory
Refers to trading after the “pit session” close and before its opening the following session. If the
overnight session trades above the settle of the most recent day session, the overnight
inventory would be considered “long”. If overnight trading is below the settle of the prior day
session, the overnight inventory would be considered “short”. Overnight inventory is an
important consideration when formulating your strategic and tactical plan for the current
session. Successful trading is extremely dependent on understanding inventory positions, both
in the overnight session and even more so in the broader auction process.

Point of control (POC)

This is the longest line of TPOs closest to the centre of the daily range. This is the price where
the most activity occurred during the day (based upon time); it is therefore the price considered
to be the fairest during any trading day. The migration of the fairest price at which business is
being conducted is of great importance in monitoring longer timeframe activity (greater than
day timeframe) in any single day.

Poor or unsecured highs or lows

Auctions, within the market’s natural two-way auction process, end in one of two ways: 1) Most
commonly the auction ends through a more aggressive counter auction that creates a buying or
selling tail; or 2) The auction ends through simple exhaustion. Exhaustion is similar to running up
a steep hill and continuing to lose pace or momentum until we just stop and begin to slowly turn
around and gradually walk back down the hill. The only thing that stopped us was the loss of our
own momentum. By far the most reliable and information packed ending is through aggressive
counter action. We refer to an auction that terminated through exhaustion as poor or
unsecured because of the lack of counter action; the original auction, after getting a rest, is
more likely to make another attempt to crest the hill. The more attempts that are made, the
more likely the auction will finally succeed. Poor highs or lows are often the result of excessively
long inventory (with regard to poor highs) or excessively short inventory (with regard to poor
lows). These inventory imbalances often involve longer-timeframes and therefore take time to
balance before continuing in the direction of the prevailing trend.
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.

Rally high/ pullback low

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

A price probe outside of the established range that indicates that more aggressive participants
have entered the auction.

Selling tail

Single prints (single TPOs) on the top of a profile; a gauge of sellers’ reactions to a higher
advertised price opportunity. The greater number of single TPOs that form the selling tail the
more aggressive the sellers’ reaction.

Short covering
We refer to short covering as “old business” because it is reversing earlier inventory. Short
covering actually weakens a market as it removes potential buying interest; you cover a short by
placing a buy order. The old adage is that a market may be too short to break any farther and
that it has to “rally before it can break”; another way to view short covering is an adjustment in
inventory. Short covering rallies can be very violent and misleading if you don’t understand the
difference between old and new business. Short covering occurs within every timeframe; day
timeframe short covering may be over quickly while longer timeframe short covering may last
for much longer periods of time.

Spike

A spike is a late price probe either to the upside or downside during the market’s two-way
auction process. It happens too late in the day to be verified as having been accepted or
rejected. For example, if an upside probe was rejected we would be left with a selling tail.
Similarly, if a downside probe was rejected a buying tail would emerge. If the spike was
accepted, price would trade within the range of the spike over time. We are forced to await the
market’s opening during the pit session of the following day for the market’s verdict.

TPO

The basic building blocks of the Market Profile® are called Time Price Opportunities, or TPOs.
Each half hour of the trading day is designated by a letter. When a certain price is traded during
a given half hour period, the corresponding letter or TPO is recorded next to the price. Any time
period may be selected.

Value area

There is always price and value; they are not necessarily the same. The value area is where
approximately 70% of a day’s business is conducted (roughly one standard deviation). This is
logical for the middle part of a bell shaped curve is where most activity occurs and indicates
where two-side trade is taking place. Many of us were graded on the basis of a bell shaped
curve; the majority of students place in the middle range. We want to trade value not price.