EURNZD
GBPNZD
GBPNZD
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Auction Market Theory and Market Profile
- #24,244
- Edited Feb 1, 2024 10:47am Jan 31, 2024 3:57pm | Edited Feb 1, 2024 10:47am
- Joined Jun 2022 | Status: Evolving | 236 Posts
Hello everyone, it's been a while since my last post on this thread and some amazing trading opportunities have been presenting themselves since. I've been meaning to write up some full post-trade breakdowns for my trading journal so I decided to do both a post and a trade analysis/overview together. Here's the one from today:
On Tuesday 30th January 2024, EURUSD created a balanced ‘D’ distribution market profile.
This ‘balanced’ state was then echoed by the fact that, on the following day after rollover (Wednesday 31st), both the Initial Balance and Opening Range opened and stayed within Tuesday’s value area!
The following are some paragraphs I've picked on the subject taken from James F Dalton’s book ‘Mind Over Markets’ and I think it's just as relevant today as it was then:
“Open within Value—Acceptance - When a market opens within value and is accepted (overlapping TPOs signify value, or acceptance), this generally indicates that the market is in balance and that market sentiment has not changed dramatically from the previous day. Trade risk and opportunity are both relatively low. The day’s range usually will be contained within the previous day’s range or overlap one of the previous day’s extremes slightly to one side. It is a trader’s dream to know ahead of time what the day’s range will be. When a market opens and builds value within the previous day’s value area, it is possible—very early on—to make a rough estimate of the developing day’s range potential. As mentioned before, the mere fact that a market opens and auctions within value indicates market sentiment has not changed significantly. Thus, generally, the developing range will rarely exceed the length of the previous day’s range.”
“Summary - Simply keeping track of where the market opens in relation to the previous day’s range and value area is valuable market-generated information. A market that opens within value is generally in balance and awaiting new information. As mentioned before, the mere fact that a market opens and auctions within value indicates market sentiment has not changed significantly. A market that opens outside of value is out of balance, and carries with it greater opportunity and risk.”
However, as I will explain below, the Initial Balance / Opening Range is within value is not the only aspect to the trade idea! The authors even warn us of this:
"The analysis of the day’s open should not be used in isolation, but as an integral part of understanding the big picture that gradually emerges as you learn and develop experience using the Market Profile."
Around the Tokyo session open, price started to aggressively sell off and prices stayed subdued for a few hours. At 7:45AM (UK time) price broke the low of Tuesday’s trading range. Nothing has changed except price. The market was balanced yesterday and balanced at open¹, now for whatever reason (general market noise / auction process of which the market is designed to facilitate) price has briefly detached from value!² This presents a great trading opportunity for me, as according to Auction Market Theory and my analysis, responsive activity should still be expected.
I believe these prices are under-value and do not accurately represent the fair value of the Euro/Dollar exchange rate. I also suspect that responsive activity will be prevalent today or until significant economic new comes out later, this should help my trade as other market participants will be trading in the same direction. I will look to confirm my theory via the detailed analysis of order flow (What Is Order Flow?):
On the 5 minute footprint chart there was nothing immediately after the sudden low of day break. I then look at the 1 minute footprint to see if any responsive activity is prevalent.
Before I do, another very important and powerful tool was giving me a warning signal for the future of the downtrend’s strength! EUR Futures (100% positively correlated to spot EURUSD) was falling, as we can see on plain candlestick charts however, Cumulative Delta was rising!
This means that even though price is falling, more and more buyers are stepping in and we can expect price to turn and follow Cumulative Delta.
On the 1 minute footprint chart we can clearly see a textbook reversal taking place: Prices come down, hit limit orders, aggressive buyers start stepping in (as represented via the highlighted imbalances) before price itself turns, price then turns, more imbalances appear (more aggressive buyers) followed by consistent positive deltas. These confirmations along with the price - cumulative delta divergence and the overall context of this specific trade gave me all the confirmations I needed along with an entry trigger.
I entered long after the 7:52AM candle closed with a stop loss just below the low. The take profit was placed at the previous day’s P.O.C (labelled on the first screenshot). Here's one last look at the whole trade on a plain candlestick chart:
A trade with a good process and good outcome! The end result was a 1:5 Risk-Reward ratio trade.
Although not necessary for this trade, but relevant to this style of trading, is the importance of exiting all responsive activity based positions ahead of important economic news/data. Here is a brief part of an earlier post on the thread:
"When trading Auction Market Theory and responsive activity more specifically, we can only expect balanced markets when all information is known and priced into the market creating equilibrium between buyers and sellers. When we do not expect balanced markets is when important economic news/data is released. Luckily for us, for the most part, all important news releases are scheduled and publicly available. Any responsive style trades have to be covered, or at least risk adjusted, ahead of any important economic news/data releases."
If anyone is still reading, have a great day/night!
On Tuesday 30th January 2024, EURUSD created a balanced ‘D’ distribution market profile.
The following are some paragraphs I've picked on the subject taken from James F Dalton’s book ‘Mind Over Markets’ and I think it's just as relevant today as it was then:
“Open within Value—Acceptance - When a market opens within value and is accepted (overlapping TPOs signify value, or acceptance), this generally indicates that the market is in balance and that market sentiment has not changed dramatically from the previous day. Trade risk and opportunity are both relatively low. The day’s range usually will be contained within the previous day’s range or overlap one of the previous day’s extremes slightly to one side. It is a trader’s dream to know ahead of time what the day’s range will be. When a market opens and builds value within the previous day’s value area, it is possible—very early on—to make a rough estimate of the developing day’s range potential. As mentioned before, the mere fact that a market opens and auctions within value indicates market sentiment has not changed significantly. Thus, generally, the developing range will rarely exceed the length of the previous day’s range.”
“Summary - Simply keeping track of where the market opens in relation to the previous day’s range and value area is valuable market-generated information. A market that opens within value is generally in balance and awaiting new information. As mentioned before, the mere fact that a market opens and auctions within value indicates market sentiment has not changed significantly. A market that opens outside of value is out of balance, and carries with it greater opportunity and risk.”
However, as I will explain below, the Initial Balance / Opening Range is within value is not the only aspect to the trade idea! The authors even warn us of this:
"The analysis of the day’s open should not be used in isolation, but as an integral part of understanding the big picture that gradually emerges as you learn and develop experience using the Market Profile."
Around the Tokyo session open, price started to aggressively sell off and prices stayed subdued for a few hours. At 7:45AM (UK time) price broke the low of Tuesday’s trading range. Nothing has changed except price. The market was balanced yesterday and balanced at open¹, now for whatever reason (general market noise / auction process of which the market is designed to facilitate) price has briefly detached from value!² This presents a great trading opportunity for me, as according to Auction Market Theory and my analysis, responsive activity should still be expected.
I believe these prices are under-value and do not accurately represent the fair value of the Euro/Dollar exchange rate. I also suspect that responsive activity will be prevalent today or until significant economic new comes out later, this should help my trade as other market participants will be trading in the same direction. I will look to confirm my theory via the detailed analysis of order flow (What Is Order Flow?):
On the 5 minute footprint chart there was nothing immediately after the sudden low of day break. I then look at the 1 minute footprint to see if any responsive activity is prevalent.
Before I do, another very important and powerful tool was giving me a warning signal for the future of the downtrend’s strength! EUR Futures (100% positively correlated to spot EURUSD) was falling, as we can see on plain candlestick charts however, Cumulative Delta was rising!
This means that even though price is falling, more and more buyers are stepping in and we can expect price to turn and follow Cumulative Delta.
On the 1 minute footprint chart we can clearly see a textbook reversal taking place: Prices come down, hit limit orders, aggressive buyers start stepping in (as represented via the highlighted imbalances) before price itself turns, price then turns, more imbalances appear (more aggressive buyers) followed by consistent positive deltas. These confirmations along with the price - cumulative delta divergence and the overall context of this specific trade gave me all the confirmations I needed along with an entry trigger.
I entered long after the 7:52AM candle closed with a stop loss just below the low. The take profit was placed at the previous day’s P.O.C (labelled on the first screenshot). Here's one last look at the whole trade on a plain candlestick chart:
A trade with a good process and good outcome! The end result was a 1:5 Risk-Reward ratio trade.
Although not necessary for this trade, but relevant to this style of trading, is the importance of exiting all responsive activity based positions ahead of important economic news/data. Here is a brief part of an earlier post on the thread:
"When trading Auction Market Theory and responsive activity more specifically, we can only expect balanced markets when all information is known and priced into the market creating equilibrium between buyers and sellers. When we do not expect balanced markets is when important economic news/data is released. Luckily for us, for the most part, all important news releases are scheduled and publicly available. Any responsive style trades have to be covered, or at least risk adjusted, ahead of any important economic news/data releases."
If anyone is still reading, have a great day/night!
Seeking Fair Value
I took a trade on $GOLD the trade idea was a failed auction from C period. The reason for entry was the price struggled to extend further from IB high as it hit yesterday's POC and targeted RTH hvn+RTH mid+daily vwap+pVAL for a rebalance/retracement.
- #24,257
- Feb 2, 2024 5:11am Feb 2, 2024 5:11am
- Joined May 2018 | Status: Tadpole | 2,719 Posts
{quote} hello i am waiting and watching the volume and the orders . I don't have any ideas right now. good trade. {image}
An old set up but a good one!
Stay green!!!
- #24,258
- Edited 5:44am Feb 2, 2024 5:16am | Edited 5:44am
- Joined Jan 2018 | Status: Trader | 17,298 Posts
{quote} HI Mate, An old set up but a good one!
mate best regards.
I sell EURUSD ; DELTA turns pink
