Trading Glossary

A glossary of common terms we use…

  • 2-minute charts: The primary time-frame utilized by Jason for entry & exits in intraday (day) trading.
  • 30 Period: 30-minute periods on TPO Market Profile charts. The primary time-frame utilized by Jason Pries for intraday (day) trading.
  • 60-minute charts: The primary time-frame utilized by Jason for understanding the trend. In other words, who is in control of the market direction, buyers or sellers.
  • 20 EMA: The twenty-period exponential moving average, often discussed in the context of a certain time-frame such as 5-minute charts, hourly charts, or daily charts. Most moving averages discussed by the firm are SIMPLE, except the 20, it is an EXPONENTIAL Moving Average.
  • 50 SMA: Fifty-period simple moving average.
  • 200 SMA: Two hundred period simple moving average, a key level especially on longer time-frames that many institutions trade against.
  • Advance Decline: The 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.
    • Something to note from Jason Pries, because our firm trades the S&P 500 primarily, the firm uses the $ADSPD composed of the net sum of the number of advancing issues minus the number of declining issues in any given moment in the S&P 500.
  • Body: Referring 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.
  • Balance: A balance area occurs when value is accepted, and price is considered fair. A move out of balance generally requires new information to take the auction to new highs or new lows.
    • A balanced session is when the market auctions go back and forth from one price level to another but maintains most TPOs in an overlapping range. Also considered balanced is when several consecutive days exhibit overlapping range, and more importantly, overlapping value areas, as the market consolidates within a trading range.
    • Note – Balance areas provide the trader recognizable areas, where lacking new information, high odd, relatively low-risk trades can be placed with the expectation that price will revert to the center of the range, at minimum, if not to the other range extreme.
  • Beta: A measure of volatility of a security in comparison to the market. In the broadcast we often say the stock has “big beta” when it’s a very volatile mover.
  • Bottoming tail: A 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”.
  • Breadth: Describing 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.
    • Something to note from Jason Pries, because our firm trades the S&P 500 primarily, the firm uses the $VOLSPD 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 the S&P 500.
    • Often the advance decline line is also referred to as “breadth”, but Jason Pries differentiates between the two by using two separate terms. Generally, the Breadth is more important than the advance decline line.
  • Bull & Bear Trap: An opening gap type of day trade in which the trader seeks to exploit the psychological shock that longer term traders feel when faced with an 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 body” candle on its daily chart. On Tuesday morning a catalyst occurs which causes the stock to open at $73.50. This negates the entire previous day’s price action and causes every investor who is still holding the stock long overnight from Monday to be “wrong”. The prior day’s bulls are now “trapped”, hence the name, Bull Trap. Reverse the whole scenario for a bear trap.
  • Doji: A 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.
  • Eighty Percent Rule: A 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, let’s say the value area in the /ES is 1275 – 1280 and the market opens on a gap down at 1270. During 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:
      1. Neither 30-minute period must close inside of value for the rule to be satisfied, just needs to trade inside it. If the first 30-minute period closes inside of value, then the rule is automatically satisfied as that implies that the second one will open inside of value. You need not wait for the second 30-minute period to close.
      2. The rule works both ways, whether the market is moving down from above the value area or up from below it.
      3. If the market opens inside of value and then trades out of value, the rule applies the same way. If the market can trade back inside value for two consecutive 30-minute periods, then it has an 80% chance of rotating to the other side of value.
      4. Context is extremely important. Do not trade this rule mechanically and expect to have good results. Always judge the strength of any directional move in terms of market internals, overall pattern, tempo, and where the current range sits in relation to prior areas of balance.
  • ES_F: The S&P 500 e-mini contract. 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 2015, then the March contract would be called the /ESH5. ThinkorSwim requires a forward slash before the letters. Certain trading platforms and charting packages may denote this differently, either with or without the forward slash or putting a space somewhere between the letters and numbers such as ES H5.
  • Excess: Commonly referred to as buy tails, sell tails and single prints, frequently highlights the end of one auction and the beginning of another.
    • No excess is frequently a sign that the auction in that direction has not been completed or has not reached exhaustion.
  • Fade: When a stock moves opposite the direction of its gap on an intraday basis.
  • Fifteen-Minute Rule: When stocks gap up or down through or very close to stops, Jason Pries 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 15-minute bar 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 (Good Til Canceled) 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 9:45 a.m. 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 this entire scenario for shorts.
  • Head & Shoulders: A 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 & 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 & Shoulders.
  • High Volume Node or HVN: An 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.
  • Initial Balance: The 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 – 10:30 a.m. 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 the open and continues as such with little balancing anywhere, then there is no initial balance. On days like that, don’t look for the initial balance range to have any meaning.
  • Initiating Activity: A 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.
  • Inside Day: A 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.
  • In-Between Periods: Any time that is in between two reversal periods (See “Reversal Periods” below). Most often, however this call is made at roughly 10:15 a.m. EST. The theory being that the two main reversal periods of the morning session are the 10:00 a.m. and the 10:30. From experience we have found that when analyzing intraday action, the time around 10:15 a.m. 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 30-minute periods 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 10:30 a.m. bar (ending at) has greater chance of producing follow through movement as it is at a reversal period rather than in between reversal periods.
  • Internals: Internals refers to “Market Internals” and is a blanket term to collectively describe the $VOLSPD (breadth), $ADSPD (advance decline), $TICK, and VIX indicators.
  • Inverted Head & Shoulders: A 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 & 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. Also see, Head & Shoulders.
  • Inverted: A term used to define a situation when the major market averages or the internals are not either all positive or all negative. i.e.: 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, it’s a signal of a choppy market that is range-bound at the prior day’s close.
  • Long Liquidation: Typically creates the “b” formation or pattern. The stem of the “b” must initiate the formation or pattern.
  • Low Volume Node or LVN: An 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.
  • Market Profile: A way of reading the market that recognizes either time spent, or volume traded at a 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 price, while volume-based market profiles measure how much volume traded at a price. Generally, market profile is used in the trading of futures, especially the /ES. Jason Pries utilizes both TPO & Volume-Based profiles.
  • NYSE: An abbreviation that stands for the New York Stock Exchange.
  • On Balance Volume: A 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 many 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 Framing: A term that can be applied to any time frame, 5-minute, 30-period, hourly, daily, weekly and so on. It portrays a directional move as in a trending market. One-time-framing generally makes higher highs or lower lows, depending on whether price is going up or down. There can be inside bars; they do not end one-time-framing.
  • Opposing Tails: A 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.
  • Other Time Frame: A 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 or Supply: When 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” or “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 or 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.
  • Pivot Points: Below are the calculations for the floor trader pivots that are sometimes used in the LIVE Trade Room. 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 24-hour 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 variable” is that we take the high and low in the futures that traded during equity trading hours only. So 9:30 to 4 p.m., even though each day’s futures session ends at 4:15 p.m. EST. For the closing value we take the settlement value from the CME as opposed to just the Last price at 4:15 p.m. The settlement value does NOT have to be the same as whatever the 4:15 p.m. LAST was. It usually is but can be different by a couple of ticks or more. When at the site, refresh the page if necessary, to make sure you have the correct day’s data on the screen. Write down the figure from that site and plug it and your high and low (from your intraday ES chart) into a simple Excel with the formulas below. “R” means Resistance and “S” means Support.
    • PIVOT = (High + Close + Low)/3
    • R3 = High + 2(Pivot – Low)
    • R2 = Pivot + (R1 – S1)
    • R1 = (2*Pivot) – Low
    • S1 = (2*Pivot) – High
    • S2 = Pivot – (R1 – S1)
    • S3 = Low – 2(Hi – Pivot)
  • Point of Control: Also 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 Jason Pries 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.
  • Price – Volume – Time: The only three main components of the auction process and is listed in the order of importance. One being the most important and three being the least important.
    1. Price advertises all opportunities.
    2. Volume determines the success or failure of advertised opportunities.
    3. Time regulates all opportunities.
  • Range & Range Extension: The term range can refer to a session range, a daily, weekly or even monthly range.
    • The initial balance, the IB, is considered the first hour’s range. Range extension is market activity that auctions beyond the IB high and or low and tends to indicate that the longer time-frame trader has entered the market. When there is range extension the perception is that price was either too cheap, too expensive, or that a news event changed the current fair value.
  • Responsive Activity: Two-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 day-traders, or pit locals whose inventory has become imbalanced and needs to be corrected. See Initiating Activity.
  • Reversal Periods: Generally, 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.
  • Same Size Bodies: A 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.
  • Short Covering: Typically creates the “P” formation or pattern. The stem of the “P” must initiate the formation or pattern.
  • Single Prints: Single prints, including tails, are frequently seen at the top and the bottom of the profile. They are formed by price moving quickly away and require at least two TPOs to be confirmed.
    • A buying tail occurs at the bottom of the range.
    • A selling tail occurs at the top of the range.
    • Tails occurring in the last period of the session are called spikes because they cannot be confirmed by a following time period.
    • Sometimes single prints are seen separating distributions within a Profile, often either as a double-distribution day or on a trending day.
    • Note – Single prints on extremes (tails) are important auction terms; they frequently mark the end of one auction and the beginning of another.
  • 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 over-trading. Most professional traders are out of the markets much more than they are in them.
  • Spiders: The SPDR or S&P depository receipt which is traded as a proxy for the entire S&P 500 & its symbol is SPY.
  • Tempo: Probably 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, because it can, it’s just rare. 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.
  • Topping Tail: A 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”.
  • Tick: The 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.
  • Tops: 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 /ES at 2959.75, 2962.25 tops”, it means that limit orders between 2959.75 and 2962.25 are being used to enter the position.
  • Value Area: A range that represents the first standard deviation of a completed session or approximately 68% of the trading activity beginning from the point-of-control (POC),(the mean or mode).
    • The 2nd and 3rd standard deviations contain 95% and 99.7%, respectively, of a day’s time, and or trading volume.
    • Value-area relationships from day-to-day are described as: higher, lower, overlapping, overlapping higher/lower and inside.
    • Note – Value-area relationships can help traders discern the conviction of both directional and balancing sessions. Also see: Market Profile
  • Value Area High: The high end of the range of the value area.
  • Value Area Low: The low end of the range of the value area.
  • Volume Area: Include high-volume nodes (HVNs), and low-volume nodes (LVNs), as part of the volume profile. An HVN is a level or area where there was a high volume of trading activity. Conversely, an LVN is a level or area where price moved rather quickly, and trading activity was much lighter by comparison.
  • VPOC, Virgin Point of Control: Any Point of Control (POC) that has not been tested during regular session trading hours of 9:30 a.m. to 4:15 p.m. EST.
  • Zero Line: A 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 it’s sitting at the “zero line”. We use this for breadth and for the advance decline line.
  • Zones 1,2,3: The zone analysis is a way of discerning whether 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 the IB is set, 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 day’s 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 stocks will break higher and traders should favor longs if trading intraday. When the market is trading in zone 3, the chances increase of a move lower and shorts should be favored if trading intraday. When the market is trading in zone 2, there is essentially equal chance that the market can break in either direction or intraday trading should essentially be avoided. The longer the market stays in the this middle third over the course of the trading day, the “choppier” it is. Zone 2 is the area most mentioned by the moderator because through experience we have found that the most difficulty in predicting short term market direction comes when the market is just treading water in a range (also known as “backing and filling” or “chopping”).
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