Dalton MP Glossary

8/7/2019 Dalton MP Glossary

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A

Anomaly: An anomaly is a single price or level that lacks symmetry, an unusual structuralarrangement in the Market Profile®; they can represent either strength or structural weakness.

Learning to spot anomalies is the first step toward understanding the information that anomalies

provide.

Asymmetric opportunities: An asymmetric opportunity is present when the risk of a trade isexceeded multiple times by the profit opportunity. Asymmetric opportunities are not to be

confused with market symmetry. Risk is measured from the location of a structural stop (as thestop relates to the Market Profile® two-dimensional structure) with the potential profit being

calculated using an exit at a potential visual market destination.

Auction process (two-way): The purpose of an auction is to facilitate trade. Prices constantlyauction 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 byproduct of the two-way auction process ismarket-generated information.

B

Balance: This refers to trading ranges, brackets, balance areas, congestion areas, andconsolidation ranges²all synonymous terms. They define price ranges in the market that are

containing trade. Within these containment ranges reversion to the mean trades are the favorite

of short-term traders. We often refer to these containment ranges as ³paradise´ for short-termtraders. 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 conceptsyou will be introduced to because they signify change or the potential for change to take place.

Balance area rules starting with inside days:

1. Market may slightly extend the range in either direction, stays in balance. Patience is in

order.2. Market explores upside breakout and is met by aggressive sellers; prices fail to be

accepted above the breakout. Fade the price probe failure²the potential target is for rotation to the opposite end of balance.

3. Market explores to the upside; higher prices receive the unexpected response and attracteven more buyers. Higher prices are accepted, breakout is successful. Go with price

acceptance in the direction of breakout.4. Market explores downside breakout and is met by aggressive buyers; prices fail to be

accepted below the breakout. Fade the price probe failure²the potential target is for

rotation to the opposite end of balance.



5. Market explores to the downside; lower prices receive the unexpected response andattract even more sellers. Lower prices are accepted, breakout is successful. Go with price

acceptance in the direction of breakout.

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 TPOsthat form the buying tail the more aggressive the buyers¶ reaction.

C

Carry forward: Simply means that you record market-generated information and incorporate it

into your market perspective and analysis going forward. This practice helps you maintain abigger perspective and helps you avoid getting caught up in the day. It is market-generated

information that you employ to understand the auction process, the odds, and helps you

formulate an effective strategy and tactical plan for the current session.

Cognitive dissonance: The anxiety we feel when we are experiencing two simultaneousconflicting thoughts or ideas; for example, the monthly jobs report is very negative or ³bearish´

while market-generated information is equally positive or ³bullish´. This is a constant andongoing issue with us as traders.

Completion: The most common two-way auction completion is identified via ³excess´: a rapid

counter auction that fades the most recent auction high or low. It is not uncommon to see anauction that has not yet completed itself; this is would identified via ³poor´ or ³unsecured´ highs

or lows. The concept of ³completion´ is applicable to all timeframes; there could be completion

of the day timeframe while still having an uncompleted short-term auction.

D

Daily range: The height of the profile from high to low. While trading occurs in the electronic

markets for most of a 24 hour period, when we refer to daily range we are referring to the timethat a market is open²the traditional ³pit session´ hours.

D

estination trade: A term that applies to a very visual level to which the market may trade. Atypical destination trade would be from the top of a five-day trading range to the bottom of therange. On an upside break out of balance, the destination trade may be to the bottom of a

previous trading range low or to a yearly or monthly high. Once again, markets are very visual.

Diffusion model: Information is the driving force of all markets; information has no power untilsomeone acts on it. Understanding human nature is key to understanding the totality of the

auction process. The following behavior is applicable to all independent timeframes: (Chapter



Two and Chapter Seven of M arkets in Profile and Chapter Six of The Tipping Point offer further elaboration on this topic.)

1. The innovators are the first to act and the hardest to detect; they are mostly individuals

and hedge funds that are not driven by committee decisions. They are generally very low-

keyed and shy away from publicity.2. The early adopt ers are next and climb aboard a trend early in the process. (Remember:these concepts are applicable to all timeframes independently.) They are also less likely

to be driven by communal decisions. They can become very aggressive.3. The early majority are generally the more astute larger organizations and individuals.

This group represents the heart of the bell shaped curve.4. The lat e majority is led by the larger, slower moving institutions and individuals; those

who require substantial information prior to making a commitment or decision. They tendto be more committee based if they are institutional.

5. The laggards are those that are extremely late to the auction; they enter just when theinnovators are packing up to go home or have already faded the current auction.

Dominant timeframe: Some background is necessary before you can begin to incorporate this

concept; however, once you understand our use of the term timeframe you will also understandthat each of these timeframes behaves differently. You will also appreciate that they may act

separately, jointly, or counter to each other. It is important in our trading decisions to understandwhich timeframe or timeframes are dominant on any given day. For example, if the longer

timeframes have little interest during the day session, the day timeframe may be able to dominatethe daily auctions. On other days, there may be a great deal of interest by the longest timeframe,

who then takes control; this is often why we experience trend days. Part of your accumulatedexperience is discerning who is participating in the auction by understanding the expected

behavior of these multiple timeframes.

E

Elongation: The simplest definition for an elongated profile is one that is lengthening; a profilethat is elongating represents a market that is proceeding directionally on a convictional course; a

non-elongating Profile represents a market that lacks directional conviction. See below:



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.

Exogenous event: An unexpected event that wasn¶t considered within anyone¶s model of expected market moving events; these events occur more than most mathematicians anticipate.

They contribute to market uncertainty.

Exponential effect: As we accumulate either negative or positive information we can¶t simply

assume that each new piece of negative information, for example, can be added or incorporatedinto our analysis by simple mathematical addition. As the negative information begins to

accumulate, each new piece of information may have the effect of very rapidly multiplying thepossible outcome of risk or opportunity. We have experienced this effect as we build sand castles

where finally the last grain of sand collapses the castle. Graphically the effect would look something like the following graph.



F

G

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. NOTE: A gap, as it is employed

in the F ield of Vision video, M ind over M arkets, and M arkets in Profile, is measured from theprevious day¶s high or low²not from the settle. A gap signifies a market that is out of balance

and presents a large opportunity.

Go with trades: Go with trades are required to benefit from breakouts from balance, trading

ranges, etc. To benefit from these breakouts, traders will be paying µ10¶ for something that mayhave been priced at µ6¶ prior to the breakout, for example. These trades, very often, represent adynamic change in market thinking as well as risk and opportunity. These trades are high risk if

you are positioned against the breakout; but large opportunities if you are going with thebreakout. With successful breakouts, structure and value will follow. The opposite of go with

trades are reversion to the mean opportunities

H

Half back: This reference is usually reserved for day and short-term timeframe trading and ismost 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 buyersbelow 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 tolow). 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 timeframebecause 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 thetrading behavior will change.

I

Initial balance: The price range resulting from market activity (generally) during the first twoperiods. 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 ³rangeextension´. 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.

J

K

LLong liquidation break: We refer to long liquidation as ³old business´ because it is reversingearlier 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, thesebreaks 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. ³a market has to break before it can rally´. Longliquidation 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 longliquidation may last for much longer periods of time.

M

Market-generated information: This is what the Field of Vision video is about. We require

objective information to perform our analysis of the market in order to arrive at the tradingdecisions we make; that information may come from news reports, fundamental or technical

sources, or governmental officials, for example. These sources may or may not actually be



putting money to work in the market. If they are not, they have little at stake; if they are, their opinions or views may be too biased. In other words, we cannot depend on this information

being objective. MGI is derived only from real positions taken in the markets by real people withreal money. The lack of commitment or placement of real orders with real money is also MGI.

Examples of MGI are buying or selling tails or lack thereof, points of control, volume, Profile

elongation or lack of elongation, and overall market structure.

N

O

One-timeframing: A trending situation where in an uptrend, the low of the previous auction in aMarket Profile® is not broken to the downside by greater than 2 tics or the low of the previousbar on a bar chart is not broken to the downside. At the same time, the high of the previous

auction in a Market Profile® or the high of the previous bar on a bar chart is normally equaled or exceeded. (It is possible that the high is not reached²the determinant is that the low is not taken

out to the downside.) As this situation occurs over multiple bars we identify it as ³one-timeframing¶. The inverse applies in downward trending situation. One timeframing is applicable

to all timeframes, from a monthly chart to the shortest timeframe Market Profile® auctionsintraday.

Recognizing a one-timeframing 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 the current market conditions.

Overnight inventory: Refers to trading after the ³pit session´ close and before its opening thefollowing session. If the overnight session trades above the settle of the most recent day session,

the overnight inventory would be considered ³long´. If overnight trading is below the settle of the prior day session the overnight inventory would be considered ³short´.

Overnight inventory is an important consideration when formulating your strategic and tactical

plan for the current session. Successful trading is extremely dependent on understandinginventory positions, both in the overnight session and even more so in the broader auction

process.

P



Point of control (POC): This is the longest line of TPOs closest to the center 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 aggressivecounter 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 reliableand 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; theoriginal 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 lowsare 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 inventoryadjustment; 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 meaningfulchange 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.

Q

R

Range ex

tension: A price probe outside of the established range that indicates that moreaggressive participants have entered the auction.

Repair: We employ the word ³repair´ when we see an area of the profile or a specific anomalythat doesn¶t contribute to the symmetry of the Profile that we are accustomed to seeing. For

example, the poor low in the crack spread shown below didn¶t have symmetry, on the followingtrading day, the symmetry was ³repaired´ when the low was taken out.



S

Selling tail: Single prints (single TPOs) on the top of a profile; a gauge of sellers¶ reactions to ahigher advertised price opportunity. The greater number of single TPOs that form the selling tail

the more aggressive the sellers¶ reaction.

Short covering rally: We refer to short covering as ³old 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 ³rally before it can break´; another way to view short covering is anadjustment 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 everytimeframe; day timeframe short covering may be over quickly while longer timeframe short

covering may last for much longer periods of time.

Short-in-the hole: Trader slang for traders who are short at bad prices; this usually occurs whenemotion takes over and the herd instinct is in full effect. Understanding market structure and

volume is, very often, a defense against getting caught ³short in the hole´.

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 themarket¶s opening during the pit session of the following day for the market¶s verdict.

Without placing the spike within any context the simple spike rules are:



Upward spike

1. A price opening below an upward spike would be considered negative since the priceprobe or spike was rejected leaving a selling tail.

2. Opening within a spike shows price acceptance and keeps the rally in tact; price has

found a level where two-sided trade is taking place²the price discovery dream of allbusinesses.3. Opening and trading above an upward spike reveals that price has not auctioned (probed)

high enough to cut off the buying allowing for two-sided trade. The auction is not over.4. The bottom of the spike is ³support´; as you begin to think in terms of spikes you will see

how visible this reference is.

Downward spike

1. A price opening and trading above a downward spike would be considered positive since

the price probe or spike was rejected leaving a buying tail.

2.

Opening within a spike shows price acceptance and keeps the break intact; price hasfound a level where two sided trade can take place.3. Opening and trading below a downward spike reveals that price has not auctioned

(probed) low enough to cut off the selling allowing for two-sided trade. The auction is notover.

4. The top of the spike is ³resistance´.

Structure: A building has structure; if you know anything about construction you can observethe structure as it is built and are able to comment on the quality, strength, and what pressures it

can withstand. You arrive at these observations by noticing the arrangement of the parts alongwith the interrelationships of the parts in the construction. If you have observed the entire

construction project, layer by layer, the structure is very visual to you at multiple layers. Somestructures are very sturdy requiring a tremendous force to move them, while others are made of

inferior materials and poorly assembled without interlocking joints or strapping to bind themtogether; these will require little force to change them.

The Market Profile® captures the building and development of each auction (structure) within

the market¶s natural two-way auction process; learning to understand the quality and strength of each auction and at each level is one step in creating a trading edge.

M arket-generated information ( MGI ) that comprises structure: accumulating poor highs or

lows and wide points of control (POCs) that are not revisited; accumulating, anomalous²non

symmetrical²profiles over time; strung out profiles that are asymmetrical in shape showing nohealthy elongation; and, daily (or even longer timeframe) bar charts that are strung out and show

no balancing²no µelevator stops¶²that reflect healthy balancing as a market trends up or down.The accumulation of various MGI²its cumulative effect²increases poor structure

exponentially. This is to say that as more suspect MGI develops, the structure is worsening at anincreasing rate and factors into our market perspective accordingly.



Suspended auction: Baseball games can be suspended because of darkness or weather; asuspended game would be completed at a later date. It is not uncommon to experience suspended

auctions within the market¶s two-way auction process. For example, the long-term auction mighttake a breather as an intermediate-term counter auction balances or adjusts the long-term

inventory. The long-term auction hasn¶t ended; it is simply suspended until the inventory

adjustment has been completed. It is not uncommon to observe the same process as a daytimeframe or daily auction experiences a similar correction. An uncompleted daily auction wouldstructurally lack a buying or selling tail and would leave an ³unsecured´ or ³poor´ high or low.

Suspended auctions occur in all timeframes.

Symmetry: A bell shaped curve or distribution has the symmetry of a ³bell´ or what is referredto as a ³normal distribution´ curve. While the Market Profile® has the bell shaped curve as its

foundation, the normal distribution is quite rare. On those rare days that the Market Profile®resembles a bell shaped curve we say that the market is in balance. We spend most of our time

observing variances from balance. The more out of balance a market is, the greater its tendencyis to trend. Also, the more out of balance a market is, the less bell shaped symmetry we will

observe. If the symmetry becomes too stretched out or elongated, we begin to anticipate a returnto balance. As an example we use the word ³symmetry´ or ³non-symmetrical´ to refer to a

profile in need of repair or to distinguish a Profile between well-formed days and those that lack completion. In these instances, we are referring to the proportional distribution across all parts

of the Profile relative to the type of day that evolved.

T

Tempo: Dictionary.com defines tempo with regard to chess ³as the gaining or losing of time

relative to one¶s mobility or developing position.´ That definition is applicable to trading; for example, if the market is attempting to auction higher, you can ask, ³How effective is theauction?´ Once you begin to think in terms of tempo you will be on your way to internalizing

this important concept. Tempo is a market term rather than a Market Profile® concept; althoughit is certainly applicable to the auction process. Many successful day traders, who consider little

else, are successful because they understand the market¶s tempo. Tempo precedes marketstructure; in this way it is a leading indicator of what structure will eventually look like.

Timeframes: Market activity is influenced by a wide variety of participants operating under a

wide variety of timeframes and motivations. The way each of these participants combines andemploys information is different. For learning purposes we have segregated the markets into 5

timeframes: (Chapter 3 of M arkets in Profile expounds on this topic.)

1. Scalpers are very short-term oriented, trades being completed possibly in seconds; theyrely primarily on intuition and order flow. Today most scalping is done via computer.

2. Day trad ers come to market each day flat (no position) and leave the day flat. Their behavior is very short-term and often emotional. They depend almost exclusively on

market-generated information because fundamental information is too slow and



cumbersome; fundamental information can actually be counterintuitive for the daytrading process.

3. Short-t erm trad ers¶ timeframe is usually 3-5 days or slightly longer under the rightcontextual conditions. They supplement market-generated information with an awareness

of recent fundamental information and the effects this can have on market movement.

They love to trade from the top to the bottom (or bottom to the top) of multiple-daytrading ranges² 5 to 10 days is ideal.4. I nt ermediat e-t erm trad ers¶ timeframe covers weeks or months of market activity; they

rely on a blanched mix of fundamental and market-generated information. Thistimeframe prefers to trade from the top to the bottom or vice versa of large trading ranges

or balance. When the intermediate-term traders begin to dominate a market, their behavior is aggressive. While they tend to dominate markets far less frequently than the

short-term timeframe discussed above, when they are dominant they are usually veryaggressive and move the market substantially. Shorter-timeframe traders who are

unaware of their entry into the market often suffer substantial losses. 5. Long-t erm investors/trad ers may hold positions for months or even years; they are far

more attached to the securities and investments they own. They tend to followfundamental information first, followed by market valuation, and finally market-

generated information to supplement their understanding of market activity. When theybecome dominant, markets can move out of the more traditional contained ranges of the

other timeframes. They move markets; and when they do, the other timeframes ³pile on´.

Timeframe trading behavior: The Field of Vision video covers the behavioral aspects of thevarious timeframes. Determining who is in the market on any given day and understanding how

their participation will affect the auction process is crucial in determining one¶s trading strategyand tactical implementation.

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 tradedduring a given half hour period, the corresponding letter or TPO is recorded next to the price.

Any time period may be selected.

Trade location: This is the area where a trader enters or exits a position in relation to market

structure. Trade location is relative to the timeframe one trades; a day trader may use tradelocation based on the current Market Profiles® while an intermediate-term trader may reference

a weekly bar chart. We are continually looking for trade location that provides asymmetricopportunities; employed in this manner trade location is one of the best risk tools available.

Considering trade location in the trade selection process can keep a trader from over-trading;when trade location is considered there are a limited number of prime trade opportunities

available.

U



V

Value area: There is always price and value; they are not necessarily the same. The value area iswhere 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 bellshaped curve; the majority of students place in the middle range. We want to trade value notprice. Appendix 1 in M ind over M arkets provides a sample calculation.

Volume: The three auction principles are: price advertises opportunity, time regulates alladvertised opportunities, and volume measures the success or failure of those advertised

opportunities. Discussions of volume are, in real world application, more complex andambiguous; it has to be used on a relative basis. For example, volume during holiday seasons

can¶t be compared to more normalized trading periods.

Volume must always be interpreted in context; for example, higher prices on lighter volume are

suspect whereas higher prices bringing in more volume suggests the opposite. Volume is alifetime study that requires the correct focus and approach; however, applied properly, volume isdata that clearly separates successful traders from their competitors.

Volume which occurs in a market that is within a trading or consolidation range would beexpected to be much lower than during a period when the market is breaking from the same

trading range with the birth of a new trend. If, however, the volume on the breakout is not stronger then you have gained value market information.

Measuring and comparing volume is tricky because you can only measure volume accurately if

you know in what direction the market was attempting to auction. Once armed with good volume

figures you then compare volume on rising days against volume on declining days, for example,to begin to sense the market¶s underlying strength or weakness.

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