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Auction Market Theory and Market Profile
It's been a while since my last post on this thread, nonetheless I've still been busy trading with Market Profile & Auction Market Theory as always. Looking through my charts I noticed a rare textbook Market Profile formation that is almost perfectly symmetrical! It is the very definition of a balanced market, take a look:
The above screenshot that I took a moment ago, shows yesterday's (Wednesday 9th May 2024) EURUSD Market Profile with the start of today's Profile. Although this is a textbook balanced Market Profile, I am waiting for a influx of volatility to get a good fill price, anticipating a return to Value; Responsive Activity.
That aside, another very clean example of the daily auction process is available on the EURUSD Daily Market Profile chart! This is the dynamic relationship between daily Value Areas, which reveal the direction value is moving and validates price movements and thus can assist the AMT trader. In the screenshot below you can see that although each day is relatively balanced, it is clear to see that Value & Price are moving directionally in larger timeframes. The following screenshot is EURUSD from the start of this week (Monday 6th May) and after I will copy n paste some educational material from the original AMT books on this specific topic, from an earlier post of mine on the thread:
“Value-Area Placement
A structural indicator that helps us better refine the level of directional performance is value-area placement. Through an evaluation of the relationship of one day’s value area to the next, we can move beyond simply determining if the market is doing a good job, to how good of a job it is doing. In other words, if attempted direction is up and volume is healthy, what impact does that have on value? Were buyers successful in placing value higher? How successful were they? Was value unchanged, overlapping-to higher, or completely higher?
Let us briefly describe the different relationships that can exist between two trading sessions’ value areas. First, value can form clearly higher or clearly lower, exhibiting obvious directional performance. Second, value can overlap to one side or the other, indicating a lesser degree of change. Third, when the value area is contained entirely within the previous day’s value area, it is known as an inside day. The market is in balance and is not facilitating trade with either participant. Finally, an outside day occurs when a day’s value area overlaps the previous day’s value area on both extremes, and represents greater trade facilitation. Much like a Neutral day, if an outside day closes in the middle of the range, the market is in balance. If it closes on an extreme, however, there is a victor in the day timeframe battle for control. A close on the highs, for example, would indicate directional performance favoring the buyer. Figure 4.54 illustrates these common value-area relationships.”
“Evaluating Directional Performance through Combined Volume and Value-Area Placement
Arriving at a final evaluation of directional performance is like baking a cake—layer by layer. First, we must define attempted direction. Second, we evaluate trade facilitation according to volume. And finally, we must determine the relative success of that trade facilitation according to its impact on value-area placement. In general, if attempted direction is up, volume is above average (or at least average) and value is higher, then the market is successfully facilitating trade at higher prices. However, if attempted direction is up and volume is lower, then higher prices are cutting off activity—the buying auctions are resulting in poor trade facilitation. If the buying attempts also result in lower value, then the other timeframe seller is still in control of the market, despite day timeframe buyer dominance. The market must then move lower to resume balanced trade, much like the aforementioned movie theater”
Trade safe,
MM
The above screenshot that I took a moment ago, shows yesterday's (Wednesday 9th May 2024) EURUSD Market Profile with the start of today's Profile. Although this is a textbook balanced Market Profile, I am waiting for a influx of volatility to get a good fill price, anticipating a return to Value; Responsive Activity.
That aside, another very clean example of the daily auction process is available on the EURUSD Daily Market Profile chart! This is the dynamic relationship between daily Value Areas, which reveal the direction value is moving and validates price movements and thus can assist the AMT trader. In the screenshot below you can see that although each day is relatively balanced, it is clear to see that Value & Price are moving directionally in larger timeframes. The following screenshot is EURUSD from the start of this week (Monday 6th May) and after I will copy n paste some educational material from the original AMT books on this specific topic, from an earlier post of mine on the thread:
“Value-Area Placement
A structural indicator that helps us better refine the level of directional performance is value-area placement. Through an evaluation of the relationship of one day’s value area to the next, we can move beyond simply determining if the market is doing a good job, to how good of a job it is doing. In other words, if attempted direction is up and volume is healthy, what impact does that have on value? Were buyers successful in placing value higher? How successful were they? Was value unchanged, overlapping-to higher, or completely higher?
Let us briefly describe the different relationships that can exist between two trading sessions’ value areas. First, value can form clearly higher or clearly lower, exhibiting obvious directional performance. Second, value can overlap to one side or the other, indicating a lesser degree of change. Third, when the value area is contained entirely within the previous day’s value area, it is known as an inside day. The market is in balance and is not facilitating trade with either participant. Finally, an outside day occurs when a day’s value area overlaps the previous day’s value area on both extremes, and represents greater trade facilitation. Much like a Neutral day, if an outside day closes in the middle of the range, the market is in balance. If it closes on an extreme, however, there is a victor in the day timeframe battle for control. A close on the highs, for example, would indicate directional performance favoring the buyer. Figure 4.54 illustrates these common value-area relationships.”
“Evaluating Directional Performance through Combined Volume and Value-Area Placement
Arriving at a final evaluation of directional performance is like baking a cake—layer by layer. First, we must define attempted direction. Second, we evaluate trade facilitation according to volume. And finally, we must determine the relative success of that trade facilitation according to its impact on value-area placement. In general, if attempted direction is up, volume is above average (or at least average) and value is higher, then the market is successfully facilitating trade at higher prices. However, if attempted direction is up and volume is lower, then higher prices are cutting off activity—the buying auctions are resulting in poor trade facilitation. If the buying attempts also result in lower value, then the other timeframe seller is still in control of the market, despite day timeframe buyer dominance. The market must then move lower to resume balanced trade, much like the aforementioned movie theater”
Trade safe,
MM
Seeking Fair Value