This is a condition where the market tests the prior day’s high or low or the current IB high or low by 1 tick before finding the opposing force pushing it the other way. This is generally considered a failed test of a significant area. Here is an example:
I say this when I notice that there is an automated, algorithmic computer system executing trades at an important area. Generally, I observe this by watching the DOM (Depth of Market – see below) and how a certain level trades. Algo’s usually have a big order that they seek to fill but they don’t want to show how much is actually out there to prevent adverse movement by the market when it is recognized. For example, if a fund wants to buy 100,000 contracts, it will not just bid that quantity at a given price. It will generally break that order down into small increments and assign a range for the algo to execute. I cannot describe in words how I detect it, but I can do so through the use of a video.
In order for you to understand what I’m looking at, you must understand auction market theory. If you see the market as simply a bunch of flashing lights, spaghetti lines on your charts and numbers, then you are likely someone who is approaching the market with similar odds as a gamer and it will be hard to attain consistency. Your broker loves you though.
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”.
The tool most commonly used to “gauge” the auction is Market Profile (MP). I can probably give a 6-hour lecture about MP, but you can research it on your own. Go here for a great primer.
This represents the maximum number of points where profits were taken on a given trade.
Same as HVN/LVN described below, but it is derived from the composite profile rather than an intraday profile.
First see Delta below. CumDelta is the sum of all of the Delta values since the start of the session.
A composite profile is a volume profile that includes data of more than one session. I only have interest in profiles of data occurring during regular trading hours. Sometimes, the big picture requires me to see what is happening over several sessions to determine high volume areas, low volume areas and significant multi-session VPOC’s. Here is an example of a composite:
I do not base my composites on a fixed time frame or number of days. The composites I use are based on the high or low of a rotation I’m trying to get volume information on. Please understand and distinguish the difference. The market doesn’t care that I have found out what the 10-day or 30-day VPOC is. Constraining my research to a given time interval or period is illogical and is not my style even if it might work for others.
This is the Low Volume Node (LVN) that separates 2 high volume distributions on a Double Distribution day. This is a key area to note as shown here:
Delta normally is used as an options Greek that describes the rate of change of the underlying instrument to the rate of change of the derivative tracking it. It is also called the “hedge ratio” in that context.
I DO NOT USE IT IN THE OPTIONS CONTEXT. For me, Delta describes the quantity of contracts bought at the offer minus sold at the bid. It simply measures the “aggressiveness” of buyers versus sellers. How does this work? If I was not a motivated seller, then I would put a limit offer out and wait for the market to come to me. I am not aggressive. If I were motivated, however, I would reach down to the bid and hit to enter the market without delay.
The delta is available as an indicator on IRT.
The delta is shown in a chart here and is highlighted by a red circle:
This describes a day which has 2 acceptance distributions or high volume nodes separated by an Low Volume Node (LVN). Suggest you look at DDLVN above for a sample image.
This is a generic term describing an existing support to be tested and will then give way to a fast push through on an ensuing test. Generally, flushes happen around century figures on a 2nd or 3rd test. Flushes are caused by stops being executed at market and so it happens fast. The market will often revisit the level from below before it continues on its way pursuant to the standard auction process.
The IB is a measurement of the extent the auction has gone one way or another during the first hour since the open. It is defined as the high and low of the first hour of trading. This is the traditional definition that you will find.
Just like with everything else, my view on this is not really “traditional”. I pay attention to not only the high and low of the first hour of business (this is usually when the main order flow happens), but I also pay attention to how it is happening. Is it a straight shot down like what occurred on this day?
Generally, if the price discovery process is fast like it was on the link above, then ES will go into a wide rotation up and will provide more scalping opportunities. If it grinds down the range in the same time period, it will likely have very little rotational action and will have a steady seller pushing it through the IB low in a choppy fashion.
This is similar to 1-Tick Test described above. It is when the market moves to a significant low or high, 1-ticks it and then we see a forceful move the other way usually on strong volume. The market has tested a significant low or high and was unable to trigger continuation. This leaves many trapped and a push the other way flushes them out.
This describes a range of prices where there is a particularly low amount of volume or dip in the profile. LVNs represent areas where not much facilitation took place between buyers and sellers. This is generally an area that gets quickly rejected by participants. In the golfing example, the market behavior is similar to a “golf ball bouncing on concrete”. It is relatively fast and aggressive.
This describes a range of prices where there is a particularly high amount of volume or bulge in the profile. Why is it significant? Think of why it would have so many contracts…why did so many trades execute at these prices? When trading through HVN’s or VPOC’s, the market tends to be “stuck in the mud” or my favorite example: Prices trade much like a golf ball bouncing in the rough.
(see above) are high volume nodes. But there are times when you have a bulging portion of the profile that does not have enough contracts traded there to make it a VPOC. This is described as an HVN.
This represents the maximum number of points at which the market moved AGAINST the trade. For example, you enter at 1109.00 short, market moves to 1110.25 before rotating down to 1102.25. MAE = 1.25 pts (notice that it is not 1 pt because you were able to close the trade by lifting 1110.25 for an out of your short trade)
This represents the maximum number of points at which the trade could have been closed for a profit. MFE is the farthest the market has gone in favor of the given trade. For example, you enter at 1109.00 short, market moves to 1102.25. MFE = 6.5 pts (notice that it is not 6.75 because you were not likely to close the trade at the very low print)
This represents a profile built using several bars in a balanced range within the composite chart. Essentially, what we are trying to do here is find out what is going on inside a balanced set of daily bars. See just below for an image of what it looks like.
This is the same as a VPOC addressed below but it refers to the VPOC of a Micro-Composite (see just above). It shows the most accepted price of a balance range within the Composite Profile
A Naked or Virgin VPOC is the same as VPOC described above, except that it has not been touched in the ensuing sessions and, therefore, remains “naked” or “virgin”. Here is an example of one:
Significance of a Naked or Virgin VPOC is that this is the price that saw the most acceptance by both buyers and sellers, but the market has not gone back to see if this still represents value. Naked/Virgin act just like price gaps in many ways.
This describes the overnight Globex session which takes place after 3:15 PM CT of the previous day up until 8:29:59 AM CT of the current day. I include the last 15 minutes after cash closes as part of the Regular Trading Hours (RTH) session simply because OTC transactions on equities and futures continue to come in at that time, so it provides valid price and volume data
This is a high and low that is set by the initial auction right after the market opens. It is independent of time and is not the same as an opening range. The opening swing is basically the high of the first push up and the first push down or vice versa. It measures how far the Market On Open (MOO) orders took the auction right after the open. OSL stands for Opening Swing Low and OSH stands for Opening Swing High
This describes all participants with a time frame that is greater than the one you are in. Major trending or vertical moves are completed by larger participants who are using a greater time frame than the one you are looking at. When the OTF participates, it generally takes many prices and a lot of volume transacted to complete an order. Funds, swing investors, governments and financial institutions in general are operating at the OTF level. They are recognized when we move from “horizontal development” to “vertical development”. They are also recognized using the opening swing, initial balance and other indications.
See Weak Low below.
Stock index futures, stock options, stock index options and single stock futures (SSF’s) all expire on the 3rd Friday of March, June, September and December. This day is referred to as quadruple witching or quad-witching Friday. Derivative traders will be more active during this time due to the combined effects of exercise, delivery, hedging, arbitrage as well as speculative options trading and futures trading activity during quad-witching. Generally, there is a 50-70% increase in volume leading up to this day. Although the overall action doesn’t look like other days, underneath the surface, there is a lot of trading occurring to hedge delta and to attempt to pin prices in order to generate or hedge returns.
The Point of Control in Market Profile terms stands for the most commonly traded price closest to the center of the range. Since I am not interested in old-school market profile letter-based measurement of trading activity (see here for an example), I only focus on volume-based profile.
Significance of VPOC is that this is the price that saw the most acceptance by both buyers and sellers (for every buyer, there is a seller). The market has priced in all known variables and finds this price to be the most favorable to get in and out of the instrument traded.
This is the price at which the current trade would have to be closed in order to be scratched or without a loss. Theo Avg is a mathematical computation that factors in any partial profits taken on the trade and assumes that if you had to close for a flat, where would that price be. This is a complicated subject for this page. There is a clear example here.
The price zone from which a news-based impulsive move was initiated. Due to the nature of the move, the area between the Scene of the Crime and where it is before it retraces remains unauctioned and is therefore susceptible to a retest. Just like a criminal might return to the scene of the crime out of curiousity, the market often does the same.
Scaling is simply the process of taking profits or reducing risk on a trade. Once I have entered the market, I take partial profits to reduce risk and to hedge against an unforeseen counter-movement that might take place at any time. An example of a scale-out scheme tweeted in real time is posted here: Anatomy of a Scaling Trade
I scale into trades in very important zones to do business. In those situations, I will say “scaled in” or “added at 10XX.XX”.
This describes the session which starts at 8:30:00 AM CT and continues until 3:15 PM CT. This is when the underlying equities of the index I’m trading are open and trading regular volume. I include the last 15 minutes after cash closes as part of the Regular Trading Hours (RTH) session simply because OTC transactions on equities and futures continue to come in at that time, so it provides valid price and volume data.
It is easiest to illustrate what a weak or poor low by discussing what a strong or excess low is. When the market moves lower and finds that prices are just too low to be fair, the traders generally immediately drive price higher as buyers grab up as many contracts as possible at the perceived low prices. This generally leaves a buying tail on the chart and little in the way of volume on the profile. A weak or poor low is the opposite. This occurs when the market tests a low and can’t move away from it readily. A lot of volume trades a tick or so from the low print and buyers don’t seem to be interested in lifting prices higher. This is a weak or poor low and there is a generally tendency to revisit that low within that session or immediately after that session.
Here is an example:
This basically means that, depending on whether I’m long or short, I have a limit bid or offer in the book in order to scale out of an existing position. In order to know if I’m working a bid or offer, you must have already been following the trade and know my current position.