Market Profile Terminology

The market profile way of looking at the markets asks us to incorporate some new reference words and meanings. Going forward we would be using the profile language in all of our references to market profile. So I ask of you to get familiar with the following terminology. A copy of this post will be available for future reference in forum.

Timeframes : The market profile recognizes five distinct types of individuals who operate in the markets. These are a) Scalper, b) Day trader, c) Short term player, d) Intermediate term player, e) Long term player. Each of these individuals have a perception which they bring to the market and this perception helps move the markets. The scalper and the day trader are responsible for maintaining the liquidity of the markets.

Value : The perception which all of the above mentioned players bring to the markets after the bid-ask process helps build what we call "value". Value is different for each of the mentioned players and they will move price up or down depending on this perception. For example if the intermediate term seller thinks that the market is overpriced he will jump in to move price down.On a daily timeframe, the period where 70 % of the volume action takes place is defined as the value area.Similarly we have a weekly and a monthly value area.

Buyers : Individuals of any timeframe who feel that the present market is underpriced and therefore less in value. These individuals will move price up.

Sellers : Same role as the above except they think that the market is overpriced and will move price down.

Auction : The activities of buyers and sellers recorded through the bid-ask process is called auction.The auction represents in the formation of the value area which the buyers and the sellers agree as the fairest value for the day. As the auction moves away from the value area, buyers and sellers change their definition of value. If higher prices are agreed in the auction, value is supposed to move higher and consequently the market moves up.

Selling tail : The failure of the auction at higher levels to attract new buyers results in the sellers swiftly moving in forming what is called a selling tail. The selling tail is a failed auction.

Buying tail : The same activity as above, but in the opposite direction.

Close : The final auction of the day

Open : The first auction of the day.If there is a large difference in the open and the close then again the perception of value in the market has changed.

Initial balance : The first 60 Minutes of a trading day are called the initial balance. As the name suggests, the IB tries to set up the day's balance or define value for the day.

Range extension : The movement away from the initial balance is called the range extension.Success or failure of the range extension gives us an indication of the type of day unfolding.

Initiative activity : Control by the buyer or seller in the first few minutes of the trading day is called initiative activity.As the name suggests, the action determines conviction on the part of the players to move the market.The strength of the initiative activity is useful to determine which party will have a role to play in the day

Responsive activity : This is a response to Initiative activity, the strength of which can determine changes to the trend of the timeframe.

We will take a deeper look at the importance of all of the above through real-time charts and analysis in the coming weeks. I will add some more terms to this post as we move along. So please keep checking under forums.

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Housekeeping :

a)I have had many requests for real-time updation of the trading calls. I will make a conscious effort to post updates to all my posts on twitter.Please understand that I am projecting my view of the markets and not recommending a buy or sell. Please do your own diligence for all the trading calls.You are following my views at your own risk. My views posted on the blog would be followed to their logical conclusion which is a stop-loss or target.


I suggest that you get yourselves a free twitter account and subscribe to 'join the conversation' in the twitter widget on the right side of the blog.I use tweetdeck, and I suggest you do the same to get tweets in real time. The process is documented here: http://www.tweetdeck.com/.

b) Yesterday during market hours, we had a blogmate who wanted some help in setting up his platform. Except for Mok, nobody else stepped forward to help him out.I would be happier if all of us come together and help out to solve our difficulties. As a community we can become each other's eyes and ears. How much more we can receive only if we learn to give!


c) Often I receive requests for buy/ sells. Please identify which of the timeframes you belong to.A 30 point trade is great news for a scalper and even a day trader, but peanuts for an intermediate term player.The first step to trading success is identifying your trading timeframe.