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- acceptanceWhen the market profile begins to build out or develop in a certain area, it is said that the market is accepting those prices. This can be measured either in time spent or amount of volume that is transacted. It is generally understood that ShadowTrader defines acceptance as more of a time dynamic than a volume one. A good rule of thumb is to look for at least two TPO periods to print in the accepted area. The acceptance confirms that a significant amount of market participants are transacting at those levels. Acceptance is the opposite of rejection. More
- Advance DeclineThe advance decline line for the NYSE or Nasdaq. This is a figure composed of a net sum of the number of advancing stocks minus the number of declining stocks at any given moment in each of the two respective markets.
- Anchored VWAP (AVWAP)The anchored vwap, also sometimes referred to as the "AVWAP" is a technical analysis indicator that shows the volume weighted average price of a security from a specific starting point, or "anchor". It's differs from the traditional VWAP (volume weighted average price) which is a common day trading tool that resets and starts its calculation at the beginning of each trading day. Anchored VWAP is usually used on a longer than intraday timeframe by swing traders. It is effective when a technically significant event or time is used as a starting point to begin the calculation. This starting point is called the "anchor", hence the name Anchored VWAP. Typical anchors are swing highs and lows, earnings announcement days, starts of gaps, or beginnings of weeks, months, or years. AVWAPs ... More
- AnomaliesAn anomaly is a single price or price area that lacks symmetry, which creates an unusual shape in the profile. Anomalies represent structural weakness, and they're created through the usual combination of time and price. Rogue TPO's that are sitting at the far right and also small areas where the TPO's are perfectly lined up for multiple prices creating a flat right edge can all be anomalies. Carry them forward as weak structure, nothing more.
- At the MarketIf ShadowTrader is initiating a position “at the market” it simply means that limit orders are not being used and the position is being entered with no regard to price. This is used much more often on more liquid Nasdaq issues.
- ATHAll Time High
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- balance rulesWhen a market is in balance, meaning that it is consolidating in a tight range of two or more days, then balance rules apply. The balance rules are nothing more than a framework of scenarios that could happen which prepare us for every possible outcome.
The possible outcomes and how to trade them are:
1. Look above and go. Prices move above the high of balance and find acceptance and continue higher. The target should be double the balance area.
2. Look above and fail. Prices move above the balance high but fail to find acceptance and reverse back into the balance area. This is now a short with a stop above the high just outside of balance that was recently made, with a target to the opposing low end of the balance area.
3. Look below and go. Prices move below the ... - BetaA measure of volatility of a security in comparison to the market as a whole. In the broadcast we often say the stock has “big beta” when its a very volatile mover.
- Black SwanA market event that is completely unpredictable and often without historical precedent. The sell-off on 2/27/07 would be considered a “black swan” event. By the same token the advance that followed it within three weeks pushing the market quickly back over the highs of 2/27 and much further could also be characterized this way.
- BodyReferring to the body of a candlestick or the area that is between its open and close, disregarding its swing highs and lows which are represented by the shadows or wicks.
- Bottoming tailA candlestick pattern which is comprised of a relatively small body and a much larger shadow or wick which is pointing downwards (towards lower prices), indicating that within the time period of the candle, bears pushed prices low but by the end of the candle period were forced to retreat to an area either close to or above the open of the candle. Generally a bullish pattern, it requires that the tail or wick be at least twice the size of the body to be designated as a “tail”. It is the opposite of a Topping Tail and is often referred to as a “hammer”.
- BreadthDescribing market breadth in terms of volume for the NYSE or the Nasdaq. This is a figure composed of the net sum of the amount of volume flowing into up stocks minus the amount of volume flowing into down stocks at any given moment in each of the two respective markets. Often the advance decline line is also referred to as “breadth”, but ShadowTrader differentiates between the two by using two separate terms. Generally, the Breadth is more important than the advance decline line.
- Broken Wing ButterflyA butterfly which can be either call or put whose strikes are not equidistant. In a regular butterfly there is equal distance from the long strike (wing) to the short strikes (body) and from the body to the other wing. Think of al butterflies as simply two verticals, one long and one short. The broken wing butterfly simply has the short vertical being wider than the long vertical. In exchange for some directional risk, the spread is opened for a lower price, often even a credit.
- Bull & Bear TrapAn opening gap type of daytrade in which the trader seeks to exploit the psychological shock that longer term traders feel when faced with a opening print that is strongly opposite the prior day’s price action. A bull or bear trap is created when the prior day’s price action is overly biased in one direction, and the next day opens in an area that negates the entire prior day’s move, thereby causing everyone who held the stock the day before in the expectation of greater gains to experience shock and head for the exit. For example, say XYZ has a very bullish day on Monday, opening at 74.20, making an intraday low of $74.10 and closing at $79.55, with an intraday high of $79.75. As you can see the stock opened close to the low of the day and closed close to the high, creating a “big...
- buyers shut offA multi-bar chart pattern where a number of up days (usually 3 or more) are negated by one large down day. The range of the red bar will totally span the entire range of the prior green bars.
- buying tailA single print column that appears at the bottom of a market profile structure. The tail is usually made up of at least three or more TPOs. It is formed as a result of sellers drying up and not being present in high enough numbers to continue to move prices lower once they have fallen to an area that market participants perceive as an unfair low for the session. As the lack of sellers brings a strong imbalance of buying activity in reaction to the low price levels, prices quickly reverse higher, leaving the single print tail in their wake. It should be noted that these areas usually include the taper of volume in the futures market as volumes at each price level get less and less the closer you get to the low of the tail.
- BWBAn abbreviation for Broken Wing Butterfly
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- Candles Lining Up Same Size BodiesA name given to a group of candles on any timeframe that have relatively equal highs and lows and are alternating between green and red. Three bars in the circled area in the picture below are a good example. The takeaway is simply that the market is very choppy and making 100% retracements in order to print that pattern.
- Christmas TreeThis is any time that the core sector list is split 50/50 with half of the sectors in the red (negative on day) and half in the green (positive on day). Usually signals “sit on hands” approach.
- composite profileA market profile chart that aggregates all of the volume of all of its distribution along the Y axis, forming peaks and valleys in areas of high and low volume.
- Core Sector ListAs ShadowTrader uses the S&P500 almost exclusively as the main benchmark to gauge bias and direction in all timeframes, it's important to know what sectors make up the S&P and how much weight they have. To that end, our Core Sector List is the 11 sectors that make up the S&P500. We track them using the ETF's listed below. You'll note that all sectors have a weighting percentage as well. This is important as the top 5 sectors make up almost 75% of the S&P.
Information Technology XLK - 28.2%
Healthcare XLV - 14.2%
Consumer Discretionary XLY - 11.6%
Communication Services XLC - 10.8%
Financials XLF - 9.7%
Industrials XLI - 8.3%
Consumer Staples XLP - 7.0%
Utilities XLU - 3.0%
Real Estate XLRE - 2.6%
Materials XLB - 2.6%
Energy X...
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- DiamondsThe tracking stock or ETF for the Dow Jones Industrial Average. Its symbol is DIA.
- DojiA candlestick pattern in which the open and close are the same (or almost the same). The pattern indicates extreme indecision as prices move up (to form the upper shadow) and then move sharply down (forming the lower shadow), only to end up closing very near where they originally opened at the beginning of the time frame in question. The pattern also indicates a contraction of volatility.
- DoldrumsThe time period between 11:30 and 1pm in the markets which is generally characterized by lower overall volume and lack of trend.
- double distributionA market profile distribution that is split into two distributions that are separated by single prints. The general rule of thumb is to treat each distribution as if it were a separate day. Judge the current day's bullishness or bearishness by which of the prior day's distributions you find acceptance in. The end points of the single prints are often support or resistant points as well.
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- Eighty Percent RuleA futures trading technique which operates under the assumption that if a market opens outside its value area (where 70% of the prior session’s volume traded) and then trades into value for two consecutive 30 minute periods, there is an 80% chance that the market will rotate all the way to the other side of value. For example, lets say the value area in the /ES is 1275 – 1280 and the market opens on a gap down at 1270. During the course of the morning it trades higher and two 30 minute consecutive periods trade above 1275. There is now an 80% chance that the market will trade to 1280 before the end of the day. Some important notes: –Neither 30 minute period has to close inside of value in order for the rule to be satisfied, just needs to trade inside it. If the first 30 minute period...
- ESThe S&P 500 e-mini contract. In the broadcast we use this as our primary instrument to define market direction and effect short term trades when we have a bias in the market. This is the electronic contract that trades around the clock, as opposed to the pit traded contract. Sometimes the pit traded version is called the “big contract”. Futures contracts on are denoted by two letters and then a letter and a number to define their expiration month. The ES has four contract periods per year which expire in March, June, September, and December. These four months are denoted by the letters H, M, U, and Z. For example, if it was 2012, then the March contract would be called the /ESH2. Thinkorswim requires a forward slash before the letters. Certain trading platforms and charting packages ma...
- excess highA high characterized by a number of single prints that ends a move and is at the top of a daily market profile distribution. The minimum number of TPO's that is necessary to define an excess high is two, however when the excess has only a few TPO's, it is said to be "lack of material excess". An excess high is the opposite of a poor high, which has no single prints and is flat along the high where the TPO's line up next to each other.
- excess lowA low characterized by a number of single prints that ends a move and is at the bottom of a daily market profile distribution. The minimum number of TPO's that is necessary to define an excess low is two, however when the excess has only a few TPO's, it is said to be "lack of material excess". An excess low is the opposite of a poor low, which has no single prints and is flat along the low where the TPO's line up next to each other.
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- FadeWhen a stock moves opposite the direction of its gap on an intraday basis
- Five & Fifteen Minute RulesWhen stocks gap up or down through or very close to stops, ShadowTrader uses what we call the “gap rule” to exit the position. In the same vein as the way that we often use price clearing first 5 minute or first 15 minute bars to determine “real” strength or weakness, we are not exiting positions on mechanical stops at the open because we know from experience that stocks often gap and reverse immediately and we don’t want a GTC stop to be unnecessarily triggered. The rule of thumb is this: If a stock gaps down below the stop that has been established, wait for the first 15 minutes (up to 9:45am EST) to trade before doing anything. Then place a new protective stop just under (adjust this amount for the volatility of the issue) the low of that first 15 minutes of trade. Reverse thi...
- FOMOFear Of Missing Out.
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- gap rulesGuidelines to follow on any day that the futures open outside of the prior day's RTH range. Only opening outside of range is a true gap and puts gap rules in play. 1. Go with all gaps that don't fill right away. This means that if early trade doesn't start to correct the imbalance, then prices will probably move in the direction of the gap. 2. Larger gaps can often fail to fill on the first day or may fill only partially. 3. If the gap fills (meaning the prior day's RTH high is touched on a gap up or the prior day's RTH low is touched on a gap down) and value cannot get to at least overlapping, then the odds of a late day rally (on a gap up) or late day selloff (on a gap down) increase. 4. Gaps of larger than $20 in the /ES are difficult to trade and should be avoided early in the day as t... More
- Gox$GOX or $GOX.X The AMEX Gold Index.
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- h patternA technical pattern that often brings about erratic action until it is resolved. The pattern is formed by a large down move that is relatively one sided with little consolidation within it, followed by a lower high bounce that then retests the prior low, forming a lower case h. The h stands for "hell for shorts" as most traders mistakenly short the retest of the initial low and are then frustrated when prices fail to move lower. The pattern can exhibit on any timeframe but is most often viewed on dailies of major averages and index futures. The snapshot below is from a daily /ES in early 2022.
- halfbackA term for the halfway point between the high and low of any session, could be a day session or an overnight session. On Peter's market profile charts it is always a dark yellow horizontal line at that level.
- Head and ShouldersA technical pattern or chart formation where a stock’s price rises to a peak and subsequently declines. Then, price rises above the former peak making a higher high and again declines. Price then rises again, but not as high as the second peak and declines once more. These three peaks with the middle being the highest and lower highs on either side of it, create a pattern in the image of a silhouette of a head and shoulders where the first and third peaks are the shoulders and the second peak forms the head. The pattern is considered a bearish type of reversal. See also Inverted Head and Shoulders.
- High Volume Node or HVNAn area inside of a market profile where a very large amount of volume has traded. These areas generally act as magnets in the market and when they are tested the market tends to slow or bog down in that area. Although the point of control from the prior session is the most obvious HVN to look for, such an area need not be from the prior session. It’s important to look at a profile that encompasses many days back to identify where past HVN’s are.
- HODHigh of Day
- HVNHigh Volume Node. An area on the market profile that would look very wide on a composite profile that has volume histograms on it's Y axis. In general, markets are pulled towards high volume nodes and reject away from low volume nodes. This is why the bottoms and tops of single prints or spikes are usually supportive or resistant.
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- In-Between PeriodsAny time that is in between two reversal periods (See “Reversal Periods” below). Most often, however this call is made at roughly 10:15am EST. The theory being that the two main reversal periods of the morning session are the 10:00am and the 10:30. From experience we have found that when analyzing intraday action, the time around 10:15 am is either a continuation of a move that has begun in an earlier reversal period or a time of minor consolidation. Since the moderator uses 15 minute bars exclusively to reference intraday pivots, it has been found from experience that intraday entry on a 10:15 (ending at) bar does not statistically result in follow through of the pattern that defined entry. The 10:30am bar (ending at) has greater chance of producing follow through movement as it is at...
- Initial BalanceThe price range resulting from the market’s trade during the first two 30 minute periods of the regular trading hours session. For the /ES contract, this would be the 9:30 – 10:30am EST period. When the initial balance is relatively narrow, you should expect that it will be “knocked over” at some point in the session and price will extend out of the initial balance. This is called “range extension”. When the balance is wide, then look for the initial balance range to possibly be the range for the entire session. It is common that the highs and lows of the day will be established within the first hour of trade. Look for that to happen more often when the market is in balance or experiencing an Inside Day. When the market starts to trend right away off of the open and continues a...
- Initiating ActivityA more one sided trade that takes place when the market pushes out and away from a current balanced area, into a new level where it establishes a new area of value. Initiating activity is generally dominated by the other time frame participants. When the market is experiencing initiating activity, you do not want to fade or go against the trend. You want to get aboard the train as early as possible and ride it to the next stop. See Responsive Activity, Other Time Frame.
- initiating tradeThis is the opposite of responsive trade. Initiating trade is when new money buyers or sellers step into the market and push prices to the next area of balance. Initiating activity is essentially the start of a new trend and often starts with a breakout of prices breaching certain levels that were thought to be support or resistance prior. Initiating trade should be accompanied by an increase in volume as new money joins in to commit to the higher or lower prices.
- Inside DayA day in which the entire range of price action from lows to highs is within or inside the prior day’s range. This pattern in candlestick terms is called “harami” and is a sign of a small pause in the prevailing trend before continuing onward rather than reversing.
- InternalsInternals refers to “market internals” and is a blanket term to collectively describe the advance decline, breadth, tick and cumulative tick.
- InvertedA term used to define a situation when the major market averages or the internals are not either all positive or all negative. ie: the Dow is up and S&P and Nasdaq is down might be called out as “Head’s up, top line figures are inverted.” Basically, when we have inversion, its a signal of a choppy market that is rangebound at the prior day’s close.
- Inverted Head and ShouldersA technical pattern or chart formation where a stock’s price falls to a trough and subsequently rallies. Then, price falls below the former trough making a lower low and once again rallies. Price then declines again, but not as low as the second trough and rallies once more. These three troughs with the middle being the lowest and higher lows on either side of it, create a pattern in the image of a silhouette of an upside down head and shoulders where the first and third troughs are the shoulders and the second trough forms the head. The pattern is considered a bullish type of reversal. See also, Head and Shoulders.
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- Jumbotron StocksA short list of stocks that Brad and Peter watch closely every day for possible daytrading or option opportunities. We like these simply because they are expensive and move quite a bit in absolute dollar terms and often in percentage terms as well. The current list is: AAPL, AMZN, BABA, BKNG, FB, GOOGL, GS, ISRG, NFLX, NTES, NVDA, TSLA.
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- LBliquidation break
- liquidation breakA sudden selloff in the market that has the following characteristics:
-Often happens very early or late in the day
-Comes out of a pattern that doesn’t suggest such a break should occur
-Has no definitive catalyst or news that drives it
-Has much faster tempo than the one that has already been established
-Is often short-lived and will retrace 100% soon after or the next day
A liquidation break happens when short term traders get overly long and all panic out at once. It is different from a stronger, more lasting correction in that there are usually only very short timeframe players involved, usually those who got most recently long at poor location. - LODLow of Day
- Look Above and FailA specific type of market movement where prices rise above the high of a balance area and then fall back into the balance area. The theory is that if this happens, there are strong odds that there will be price rotation back down to the low of the balance area. Look above and fail is specific to activity around balance areas only. Rising above a prior day's high or any technical level and falling back below is not a "look above and fail". More
- Look Below and FailA specific type of market movement where prices fall below the low of a balance area and then rise back into the balance area. The theory is that if this happens, there are strong odds that there will be price rotation back up to the high of the balance area. Look below and fail is specific to activity around balance areas only. Falling below a prior day's low or any technical level and rising back above it is not a "look below and fail". More
- Low Volume Node or LVNAn area inside of a market profile where a very small amount of volume has traded. Usually an area that is “rejected” quickly by the market, thus the market does not spend a lot of time there. The theory is that when markets trade to these areas, they will be rejected again as these are areas that do not represent value in the market.
- Lupe FiascoA term Peter uses for any trade that has the potential to blow up into a large loss. Named after the rapper of the same name. Often shortened to just "Lupe", such situations should be avoided at all costs. Example: "This call ratio spread is still trading at break-even even though price has risen far quicker and further than we thought. Let's close it today to avoid a Lupe Fiasco."
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- M.G.I.Market Generated Information.
- Market ProfileA way of reading the market that recognizes either time spent or volume traded at a particular price level. A market profile can be either made up of “TPO’s” (time price opportunities), or volume. TPO’s measure how much time was spent at a particular price, while volume-based market profiles measure how much volume traded at a particular price. Generally, market profile is used in the trading of futures, especially the /ES. ShadowTrader utilizes volume based profiles.
- market profile keyA key to understanding the market profile as Peter plots it using WindoTrader.
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- Net ShortThe concept of being more short than long in an options spread by creating options spreads where you are selling more structures than you are buying or selling wider structures than the ones you are buying. Example would be a broken wing butterfly. This spread is made up of two structures, one long vertical and one short vertical. In the BWB, the short vertical is wider than the long vertical. When you are long this spread, you are said to be in an options position that is "net short"
- New BusinessA term we use for trades by market participants who are entering a new position in a security for the first time. This is in contrast to old business which is the term for trades that are closing or adjusting positions that were already entered in a previous session. The market generally transacts old business before new business. More
- NQThe Nasdaq 100 E-Mini futures. In the broadcast we only discuss this contract in the pre-market to get a feel for where the Nasdaq will open.
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- Old BusinessAny transactions in the market that are closing or adjusting positions that were already entered in a previous session. This is in contrast to "new business" which is the term for trades by market participants who are entering a new position in a security for the first time. It is a general rule that the market transacts old business before it transacts new business. We see this most clearly on large gaps in the futures market. When those gaps fill, that is old business being transacted as the overnight traders are taking profits on positions that they already entered prior to the RTH session starting. More
- On Balance VolumeA technical indicator developed by Joe Granville, the calculation of which relates volume to price change. OBV provides a running total of volume and shows whether this volume is flowing in or out of a given security. OBV attempts to detect when a financial instrument (stock, bond, etc.) is being accumulated by a large number of buyers or sold by many sellers. Traders will use an upward sloping OBV to confirm an uptrend, while a downward sloping OBV is used to confirm a downtrend. Finding a downward sloping OBV while the price of an asset is trending upward (divergence) can be used to suggest that the “smart” traders are starting to exit their positions and that a shift in trend may be coming.
- one time framingA trending situation where in an uptrend the low of the previous bar or TPO period is not broken by two ticks or more. In a downtrend it would be reversed and the high of any previous bar or TPO period is not broken by two ticks or more. Note that if you are one time framing to the upside, it is not necessary for the bars to make higher highs. The one time framing is only concerned with the lows. If one time framing to the downside, then it is not necessary to make lower lows as the one time framing is only concerned with the highs. One time framing can be identified on any timeframe or even down to the TPO. Thus, a five minute chart could be one time framing to the upside where it is constantly putting in higher lows but the daily chart is not. If looking very granular at the TPO level, y... More
- ONHOvernight High. A term mostly used in describing the futures market which has an overnight session and trades almost around the clock. To be precise, in the /ES this is the high made between 4:30pm EST and 9:30am EST the next day.
- ONLOvernight Low. A term mostly used for the futures market as it trades almost around the clock. To be precise, in the /ES this would be the lowest price between 4:30pm EST and 9:30am EST the next day.
- Opposing TailsA situation on 15 minute charts (usually discussed in reference to $SPX or another index) where the shadows or tails of two consecutive 15 minute candles point in different (opposing) directions. This indicates extreme indecision on an intraday chart as bulls and bears pushed prices both low and high over the last half hour but at the end of that time period ended little changed.
- OTFOther Time Frame - This is a term from the early days of market profile that simply denotes those market participants that are not active in the day time frame. Think: longer term buyers and sellers like swing or core.
- Other Time FrameA market profile term for those participants whose time frame and outlook is of a very long term, perhaps months or years. The theory is that it is these market players that are active when the market is experiencing initiating activity as opposes to responsive activity. See Initiating Activity, Responsive Activity.
- Overhead SupplyWhen a stock or index suffers a down move, it is said that the area to the left of current prices which is higher is an area of “overhead supply”. This is because we know that not all individuals on the way down were sellers. At all levels are buyers and sellers who are net long or short. As stocks move up back towards resistant areas we say that they have overhead supply because we know that bulls will be waiting to “get their money back” as the stock rises back to levels that they purchased at. More
- overnight inventoryA way of measuring overnight activity in the futures market by just noting how much of the overnight activity happens to fall above the prior day's settlement value (4:15pm EST close) and how much falls below. If more activity is above the settlement, then overnight inventory is said to be net long. If more is below, then it is said to be net short. If all of the overnight activity is above the settlement, then it is said to be 100% net long. If all of the activity is below the settlement then it is said to be 100% net short. The overnight inventory situation matters most and has the most impact on early trade when it is skewed 100% in either direction because when the imbalance is very large like that then the odds of an early correction increase greatly. This is due to the fact that most...
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- piling on effectA market dynamic where very current action is adding on to preceding action that was firmly in one direction. An example would be back to back trending days. Another example could be a strong trending day down which closes near the low and then gaps down the next morning. Think of it as the most current action piling on to the preceding action. The outcome to this is often a very sharp reversal in the opposite direction due to this effect. More
- PinchA term Peter uses often in Weekly Options Advisory live sessions to note when the 8 period EMA moves through the 21 period EMA on the SPX cash 30 minute chart. This can happen in either direction; there can be a pinch up or a pinch down. More
- Pivot PointsBelow are the calculations for the floor trader pivots that are sometimes used in the broadcast and are listed daily in the ShadowTrader Pro Swing Trader. The high, low and close used in the calculation is from the prior day’s values. Generally these values are derived from the E-mini S&P futures, also known as “ES”. The pivots can be calculated using 24hour data or only trading hours only data. Although experimentation has proven both to be valid, we have found using trading hours only data to be more relevant as large gaps often put the pivot points too far outside of the market to be of any use. The “special sauce” is that we take the high and low in the futures that traded during equity trading hours only. So 9:30 to 4pm, even though each day’s futures session actually ends...
- POCPoint of Control, also known as the "fairest price to do business". It is the price level in the /ES where the greatest amount of volume in the prior RTH session traded. ShadowTrader measures the POC using volume but the traditional way is to mark off the widest point of the day's distribution where the most TPO's printed going across from left to right, indicating that that was the price where the most time was spent. It's important to pay attention to both the volume POC and the TPO POC.
- Point of ControlAlso called “POC” for short. The level in the futures inside the value area where either the greatest amount of volume traded in the prior session, or the greatest amount of time was spent as measured by the number of TPO’s going across. Measured this way, the POC would be the widest part of any given market profile. While ShadowTrader calculates its value areas and points of control using volume exclusively, we are always very aware of where the TPO POC is and it’s relation to current prices or patterns in the profile. Both are very important.
- poor highA poor high is one which lacks excess and is the opposite of an excess high. A poor high will have less than two TPO's of excess at the top of a daily range with at least 2-3 columns of TPO's lining up to form a flat looking top. It indicates that there are short term or weak handed longs at that high of day area. We know this because every time prices rise to the top, they get sold quickly, thus forming the poor high.
The poor high has two forward looking indications. The first is that prices should back away from the poor high as there are a number of longs trapped at poor location. The second is that if the next day or in some subsequent session, the poor high is revisited, then the odds are strong that it will break and move higher. This is called repair as it repairs the structur... - poor lowA poor low is one which lacks excess and is the opposite of an excess low. A poor low will have less than two TPO's of excess at the bottom of a daily range with at least 2-3 columns of TPO's lining up to form a flat looking bottom. It indicates that there are short term or weak handed shorts at that low of day area. We know this because every time prices sell off to the low, they get covered quickly, thus forming the poor low.
The poor low has two forward looking indications. The first is that prices should bounce away from the poor low as there are a number of shorts trapped at poor location. The second is that if the next day or in some subsequent session, the poor low is revisited, then the odds are strong that it will break and move lower. This is called repair as it repairs the ... - Prominent POCProminent Point of Control. This is a point of control level measured by time and not volume which is very wide relative to other areas of the distribution. It is a price level where every single (or almost every) TPO period traded. Prominent POCs are important as they have greater odds of being tested in subsequent sessions than less prominent POC levels. When measuring the POC by time and not volume, note that there can be a number of levels that are the same width. In the snapshot above, the green line of TPO's is where the most volume traded in the session. This is a good level to use as the prominent POC, keeping in mind that any of the wide areas can be turning points. If you look closely at the graphic, you can see the in the circled area, every TPO period (from B to O) is represent... More
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- rejectionPrices are rejected when they move away from a key area quickly in the market profile. For example, let's say that futures open below the value area and start to rise towards it. Upon breaching the low of the value area, they rise just a couple ticks higher and then fall quickly back out of the value area. That's rejection. Rejection is often noted when prices move into "make or break" areas such as an ONH or ONL or prior day's RTH high or low from outside of those areas.
Rejection is the opposite of acceptance. - RepairA market profile term for "fixing" profile distributions that are missing parts that would make them complete or more symmetrical. This concept is most often applied to poor highs and poor lows which are profile distributions that lack excess on their endpoints and have two or more TPO's across creating tops or bottoms that look flat. Once a new session trades through these levels then it is as though the current activity was "pasted onto" the prior activity to complete the picture. It should be noted that repair can only occur in an RTH session. Overnight activity that trades through areas of poor RTH structure does not repair that structure. More
- Responsive ActivityTwo sided trade going back and forth between traders that have a short term outlook and are keeping prices contained within a range. For example, when a market trades to or even slightly above a defined range, if sellers become dominant and push the market back down lower, they are said to be “responding” to higher prices. This is the opposite of Initiating Activity. Responsive activity is usually defined by short time frame traders such as daytraders, or pit locals whose inventory has become imbalanced and needs to be corrected. See Initiating Activity.
- responsive tradeA responsive trade is a counter-trend trade taken against a specific level. The theory is that when two sided trade is taking place, there will not be enough momentum to push past key levels and buyers or sellers will respond to those areas, essentially pushing prices away from them. This is the opposite of breakout or initiative trade which is more directional in nature and is generally taken in the direction of the prevailing trend.
- Reversal PeriodsGenerally the market tends to pivot or have inflection points at certain recurring times of the day. These times are 9:55-10:05, 10:25-10:35, 11am, 1pm, 2pm, 2:30pm and 3pm. ShadowTrader generally initiates positions around these time.
- Reverse MulletA type of broken wing butterfly that has a wider long vertical than its short vertical. In a traditional BWB, the long vertical is more narrow than the short vertical which can allow the spread to be placed for less debit or even a credit. The reverse mullet always trades for a debit to open as the long vertical is wider than the short. For purposes of illustration, understand that a butterfly (of any type) is always just a combination of long verticals and short verticals that have the same short strike. Examples: (Assume all strikes are calls) Traditional BWB +1 4000 -2 3985 +1 3980 This would trade for a credit as the 3980/3985 long vertical is narrower than the 3985/4000 vertical. It would also have upside risk, delivering a loss of $10 per contract if all strikes expired fully ITM. Re... More
- Risk ReversalA catch all term for any trade that has a debit on one side (call or put) and a credit on the other. The purpose is to have the credit side pay for the debit side. The play is directional in the direction of the debit side. Example: long bias in AAPL long 150/155 call vertical at a debit short 140/120 put vertical at a credit Depending on where you are positioning, your size on either side may not be equal. For instance, if you have a debit structure of one vertical on the call side that costs $2, you might consider selling four put verticals at $0.50 to pay for it. More
- RTHRegular Trading Hours. In the /ES this means the price action from 9:30am EST to 4:15pm EST only.
- ruling reasonA term that may or may not have been coined by James Dalton, our mentor in market profile. It means the current ethos, zeitgeist, feel, tone, essentially "what is happening at this moment". It is that thing that is currently driving the market which can often fly in the face of all analysis and common sense. Can be something as simple as "the market wants to tag this particular psychological level", or more nuanced like underlying Fed policy or heightened sensitivity to news events.
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- S.O.H.Literally, “Sit On Hands”. A term used when the market is choppy or erratic and the odds of trades on either side of the market (long or short) have low odds of working out due to overall market indecision. This term is used often and is a warning against overtrading. Most professional traders are out of the markets much more than they are in them.
- Same Size BodiesA comment that often precludes “S.O.H.”, it is a market phenomenon when fifteen minute bars that are next to each other are lined up and have “bodies” of the same size where the last candle is a mirror image of the previous one. Also described as “Candles Lining Up”, it is a pattern that shows a very choppy market that may be untradeable intraday for the time being due to erratic price action.
- Sandwich TimeThe midday break in the broadcast between 11:30am and 1:30pm EST.
- sellers shut offA multi-bar chart pattern where a number of down days (usually 3 or more) are then negated by one large up day. The range of the green bar will totally span the entire range of the prior red bars.
- selling tailA single print column that appears at the top of a market profile structure. The tail is usually made up of at least three or more TPOs. It is formed as a result of buyers drying up and not being present in high enough numbers to continue to move prices higher once they have risen to an area that market participants perceive as an unfair high for the session. As the lack of buyers brings a strong imbalance of selling activity in reaction to the low price levels, prices quickly reverse lower, leaving the single print tail in their wake. It should be noted that these areas usually include the taper of volume in the futures market as volumes at each price level get less and less the closer you get to the top of the tail.
- shock and aweA term Peter uses to describe what overnight futures traders may be feeling when faced with an open that is wildly divergent from what they expected. Large gaps in either direction that are opening well outside of range are examples of this. The approach is that when the market opens in such a manner, there is often opportunity to trade earlier rather than later because of the large contingent of traders who will be forced to reverse their positions quickly.
- short in the holeA condition where late day sellers close price at or near lows but value and the volume POC remain much higher up in the RTH distribution.
- single printsAny section of the market profile distribution that is only one TPO wide. Single prints are a sign of emotional buying or selling as very little time was spent at those levels and thus there is no value there. The endpoints of single print sections are considered to be potential support or resistance points.
- Sox$SOX or $SOX.X. The Philadelphia Semiconductor Index. This index which tracks the leading chipmakers is discussed very often during the course of the trading day. Due to the heavy weighting of semiconductor companies throughout the Nasdaq Composite and Nasdaq 100 ($NDX), the Sox often “leads” the Nasdaq and is watched as another internal indicator alongside the breadth, trin and advance decline lines.
- SpidersThe SPDR or S&P depository receipt which is traded as a proxy for the entire S&P 500. It trades similar to the DIA or QQQ and its symbol is SPY.
- spikeA set of single prints that are created in the last 30 minute session of the day which form at the top or bottom of a range.
- spike rulesA framework for analyzing a spike on the next trading day after it is formed.
Because the spike forms late in the day, it is impossible to gauge whether or not the higher or lower prices that have run quickly away from value will be deemed fair later. Thus we employ the spike rules in the next session.
Everything below is assuming a spike at the TOP of a daily range (reverse for a spike at the BOTTOM of a range)
-If prices open above the spike, that is considered bullish and tells us that prices didn't auction high enough in the spike to attract sellers and cut off buying activity. Monitor to see if there is acceptance above the spike.
-Prices opening within the spike confirm the higher prices of the spike. This tells us that the prices are fair enough for two sided... - StalkingA form of “heads up” for clientele to know that an official trade call is more than likely coming soon on the symbol being stalked. Generally announced before an intraday trade, the term is however often applied to any stocks that are currently on our watch lists for possible position (swing) play.
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- TaperA market profile term that Peter often calls out in the Weekly Options room. The "taper" is the tapering off of contract volume in the /ES as it moves to either the high or low of the day. Almost all highs and lows of a session are characterized by a diminishing of volume as price gets closer to the ultimate low or high of the day. By the end of a regular trading hours session, almost every contract level will have at least 1,000 cotracts traded at it with many of the levels having over 10,000. The taper occurs when you start to see contract sizes per price level less than 1,000 and very often less than 100 on the exact high or low of the day. The taper is a strong trading signal that the move underway may be over and the high or low of the day has been put in. When the taper is punctuated... More
- Tattoo ProfileA market profile distribution that is very symmetrical with about an equal amount of TPO's on either side of halfback and approximately the same amount of excess at each extreme. The thought being that if you were to request a market profile tattoo, it would be a picture of this sort of distribution that you would bring with you to show what market profile looks like.
- TempoProbably one of the most important and yet overlooked concepts in the market. The tempo is simply the ‘speed’ at which the market is moving. This is also referred to as confidence. Slow tempo is typical of range bound days where there is lots of responsive activity. Fast tempo occurs when there is initiating activity, and market is breaking out of a range. This is not to say that the market can’t have fast tempo on days when it is rotational or moving between the extremes of a value area. It certainly can. Effective intraday futures trading involves gauging the tempo and knowing that opportunities are fewer and smaller when the tempo is slow. See S.O.H.
- three premarket questions1. Are we opening in or out of balance. This is defined by both the prior day's RTH range and any larger recent balance area should it exist.
2. Is overnight inventory net long or net short and by how much?
3. Where in relation to the entire overnight range are futures trading currently? - three questions1. What is the market doing? (This is the general tone and bias that is currently in play)
2. What is the market trying to do?
3. How good of a job is the market doing getting there? - TickThe net cumulative tick reading on the NYSE or Nasdaq Composite. This is measured by the number of stocks ticking up minus the number of stocks ticking down at any given moment. It is the least used of the internal indicators but is discussed from time to time. Generally the tick readings are only helpful when they are at extremes such as +1000 on the NYSE to indicate that program trading is ensuing.
- Top-Line DivergenceA occurrence where the three major averages mentioned above are diverging from each other. During top line divergence, there is some combination of either one of the three being positive (up) with the other two negative (down) or one negative and two being positive. This indicates a choppy session as there is relative strength in some indices which may be acting as a drag on the others and vice versa. When the moderator calls out top line divergence generally the market is stuck in a range.
- Top-Line FiguresThe top line figures are nothing more than the current levels of the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite. Peter keeps these three numbers on the top line of a quote box on one of his screens so he started calling them “top line figures”. Its not a term he coined himself and would not be found on a site like Investopedia.com
- Topping TailA candlestick pattern which is comprised of a relatively small body and a much larger shadow or wick which is pointing upwards (towards higher prices), indicating that within the time period of the candle, bulls pushed prices high but by the end of the candle period were forced to retreat to an area either close to or below the open of the candle. Generally a bearish pattern, it requires that the tail or wick be at least twice the size of the body to be designated as a “tail”. It is the opposite of a Bottoming tail, or Hammer pattern. Can also be called “inverted hammer”.
- TOPSTops refers to the highest or lowest possible price that will be accepted to enter a trade when bidding or offering using limit orders. Therefore if the moderator says “Shorting IBM at 84.60, 84.50 tops”, it means that limit orders between 84.60 and 84.50 are being used to enter the position.
- TPO(MP) Stands for “Time Price Opportunity”. It is the smallest unit of measure displayed any market profile graphic, denoted by a single letter. Each TPO represents a point of time where the market being charted trades at a specific price. A single TPO is printed on the chart every time that a certain price is touched during any time period. Typically, the periods are set to 30 minutes. Therefore, every different letter that you see in the market profile distribution denotes a different 30 minute period.
- TRINThe Traders Index, also called Arms Index after inventor Richard Arms. A complex fractional equation that takes into consideration the number of advancing stocks versus the number of decliners and also the respective volume of those two groups. Although TRIN readings over 1.0 are interpreted as bearish and readings below 1.0 are bullish it is the trend of the TRIN that is most important and any discussion of TRIN will always be in context of the trend.
- true gapThere is a lot of discussion as to what constitutes a gap. Is it measured to the prior day's close, or to the prior day's high or low? Here at ShadowTrader, we believe that it is always and only to a prior day's high or low, thus creating a true gap or space on the chart between one day and the next. Thus a true gap is one that has price opening completely outside of the prior day's range (either above the high or below the low) and anything else is just a gap that has far less import. As a gap is a "reordering of thinking", only a true gap really changes the tone and creates opportunity to trade earlier (near the open) rather than later. More
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- Unbalanced ButterflyAn type of butterfly that is made up of one long vertical and two short verticals with all of the shorts being at the same strike. Also referred to as a "132" sometimes due to the number of options at each strike. Example: SPX calls +2 4050 -3 4025 +1 4000 Ther is a long vertical at 4000/4025 and two short verticals at 4025/4050 Unbalanced butterflies can often be placed for credits due to the nature of selling twice as many verticals as are being bought. The trade can be done strictly as a credit collection vehicle or as a directional trade. Unbalanced butterflies are most effective when time to expiry is short as you are then leveraging the high number of short strikes whose total premium decays much faster than your one long strike. More
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- VAHValue Area High
- VALValue Area Low
- ValueThis value has nothing to do with valuation. It denotes prices that are "fair". Fair in this sense means a price that is common to a lot of participants. An item that you buy once per week in a store at a price that doesn't fluctuate has a "fair price". You can express this by a formula Value = Price + Time or Value = Price + Volume Either of the above are valid ways of expressing value. In the first equation, value is defined by price staying the same for a long period of time. In the futures market, this would be an area that is revisted a lot during a particular session or multiple sessions. The point of control is the price level where the most amount of time was spent during an RTH session. James Dalton refers to this level as "the fairest price to do business". Using vo... More
- Value AreaA range where approximately 70% of the prior days volume traded. The range is derived from one standard deviation on either side of the mean which is roughly 70%. See: Market Profile
- Value Area HighThe high end of the range of the value area.
- Value Area LowThe low end of the range of the value area.
- VPOCVirgin Point of Control. This is a point of control level that has not yet been tested (traded through) during an RTH session. If the POC gets tested during an overnight session, it does not count and remains "virgin" until it happens during a day session.
- VPOC, Virgin Point of ControlAny Point of Control (POC) that has not been tested during regular session trading hours of 9:30am to 4:15pm EST.
- VWAPVolume Weighted Average Price. This exactly what the name implies. VWAP starts fresh every morning at the open and starts to calculate as the day goes on and can be printed on a chart as the day progresses. The VWAP line can be an excellent setup for daytrades. Strong stocks that are making new two day highs are often buys when price pulls back to the VWAP line. Conversely, weak stocks making new two day lows are often shorts when they rise to the VWAP line. The VWAP is most effective when charted on trading hours only and ShadowTrader is partial to the five minute chart although in theory the VWAP line should be the same no matter what timeframe chart you are on. It is common for there to be a slight discrepancy in the VWAP calculation between various charting platforms. There is also the... More
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- weak highA weak high should not be confused with a poor high. The latter speaks to a deficiency in structure and the former deals with the location of the high. A weak high is formed when a market rises and reverses right at a specific point which is often a technical or profile nuance. Some examples would be prior intraday highs, the upper extreme of a value area, the prior day's settlement, or the current day's open. In each case, the location is a mechanical and visual reference that is used by short term traders as an entry point. The high is deemed weak because it can be taken easily when retested due to the short term nature of the sellers who initiated their positions at that level.
- weak lowA weak low should not be confused with a poor low. The latter speaks to a deficiency in structure and the former deals with the location of the low. A weak low is formed when a market falls and reverses right at a specific point which is often a technical or profile nuance. Some examples would be prior intraday lows, the lower extreme of a value area, the prior day's settlement, or the current day's open. In each case, the location is a mechanical and visual reference that is used by short term traders as an entry point. The low is deemed weak because it can be taken easily when retested due to the short term nature of the buyers who initiated their positions at that level.
- WWSHDWhen What Should Happen Doesn't - A market dynamic where prices defy what is normally expected of them given the specific context they are in. A good example would be filling a larger gap only partially. The thinking is that the failure to do what should happen means prices are potentially headed in the other direction.
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- Zero Day Exploit Trade (ZDE)An options trade that is entered either on the day of expiry or the day before. This is named after computer security term. In the case of the options trade we are exploiting the extreme theta crush of the short time to expiry and also the potential delta in our favor as some of the options expire ITM. Generally done with spreads that are net short.
- Zero LineA term we use to indicate parity in the internals. For instance if the breadth goes flat (advancing volume is equal to declining volume), we say its sitting at the ‘zero line’. We use this for breadth and also for the advance decline line.
- Zones 1,2,3The zone analysis is a way of discerning whether or not the S&P (our main gauge of current market sentiment and direction) is trading within the upper, middle or lower third of the current day’s range. Once at least 45 minutes of trade have ensued, take horizontal line drawing tools on your charting package and draw one line across the high of the day on the SPY or the S&P 500 (SPX). Next draw another line along the low of the day. Then finish by drawing two more lines equidistant from each other and from the first two lines drawn so that the days range is divided into three equal thirds. Label the upper third “zone 1″, the middle third “zone 2″, and the lower zone “zone 3″. The thinking here is that when the market is trading in zone 1, there is an increased chance that stoc...
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- 200maTwo hundred period moving average, a key level especially on longer timeframes that many institutions trade against.
- 20maThe twenty period moving average, often discussed in the context of a certain timeframe such as 15 minute chart or daily chart. All moving averages discussed in ShadowTrader are SIMPLE and not EXPONENTIAL
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- 45 degree lineThe 45 degree line is an interesting market profile nuance. It occurs when a 45 degree line can be drawn from the lowest point of a distribution to its widest point (TPO POC). This is a sign that sellers have painted themselves into a corner near the lows of the session and creates potential for an upward reversal in the next session. As less and less time is spent the closer you get to the low of the session, sellers are essentially initiating shorts at less and less value. 45 degree line lows should be assumed to be secure until they are breached. The pattern is generally only noted in RTH sessions but they have shown to be relatively reliable signals in overnight sessions as well. The obvious question is always whether or not the 45 degree line can be drawn in from the high of the day t...
