Auction Market Value Theory & Analytics

Thanks for the example, it helps turn tactical into practical.

Hi MzVega,

If post 100 would be better explained with a recent chart of yours, it would be nice. Just a suggestion.

Thanks.

I’m not quite sure it’s that simple. I’d have to sort through data & charts to find those same instances. The market is complex, no two days will have the same set of circumstances.

I think you’re missing the point. You’re looking for a “chart/profile pattern“that you can identify to tell you this info. That’s the problem with pattern recognition, a “picture” of this data won’t tell you this info. The majority of MP users don't want to take the time or effort to do the math (or read the books), they prefer you show them a "picture" or video instead. Unfortunately, you can look at a profile until your eyes bleed, you'll never be able use "volatility" (or any other reference point) as a measure of congestion until you calculate it, record it, and compare it to the previous day. You cant tell if there's an imbalance of buyer & seller demand within the VA, until you calculate TPO's. You cant tell how well the market is "facilitating" trade until you divided tpo's/price ticks=TFF, rotation factor, etc............
You can stare at a profile all day, it wont tell you anything about the market until you actually do something with the data. This happens off chart.

This info can’t be "seen" on the chart. Well, that’s not quite true, but by the time this info is reflected in the structure of the profile, it’s in “hindsight” after the fact, and too late to be of any use. By the time you see the info reflected in the structure of the profile, the move & the opportunity, has passed.
By recording & tracking EOD profile data, you have the data need to form a bias & trade plan. We, know what behavior is “expected”, and we also have a plan on what
to do when the “unexpected” happens.

The profiles “reference points”, aren’t used as “targets” & “entry points”. You could consider them the “indicators” used for AMT. We track & monitor this data every day, from one day to the next looking for changes in the data. This is what we call “market internals”. It’s the small changes in this data that “tip us off”, to what’s going on & developing inside the profile.

One of the most important things when using these reference points, each one stands on its own. First you need to learn what each one, on it's own, means & how its “relative” (rather than absolute) changes affect the Market. Then we take the sum the parts to make a whole to form a bias. The reference points are either “directional” or “describe activity”

We're looking for changes (patterns) in the “data”, not in the profile itself. We use the data to “interpret” the picture/graphic. The profile graphic doesn’t tell you anything about the market, the data does, the data is used to confirm or invalidate what you think you see on the chart.

I really don’t have the time to search through past examples, but again, I encourage you to read about it yourself in the books posted in the first post. the books have plenty of examples.

Here is an example from Thursdays & Friday’s data, this will be the data used to plan to trade Monday’s open. This data provide by Cisco, is free on the weekends, I personally use more reference points, as I track the “major” & “minor” auctions. The original MP methodology only takes into account “the daily” TF (minor auction).

The data on the left is Friday’s data relative to Thursday.
Most of the references are self explanatory,Open, high, low, vah , val, all higher. Total tpos are decreasing relative to thurs, that argues for congestion, tpos above & below poc are less, (more so less seller demand than buyer demand), Trade facilitation factor worse, argues for congestion (two way trade (rotation)), Volatility is 50% lower than the Thursday, as in the example there was a break to the downside on lower volatility, that tells us that the selling demand is slowing/decaying , the close in relation to the IB closed inside the IB, price closed higher that were it started, etc. I encourage you to read up on this. This is the info you take into the trading day. I’ll get more into reference points, but there are a few more basic fundamentals, I want to address. No one seems to want, to read about this on their own. None of the multitudes of 10 minute videos clips on MP will address this info (maybe they do, once you subscribed to whatever it is their trying to market).

A few basics on market condition & participants...............

The Market Cycle: Four Phases of an Auction Market, its Condition.
Normally, 'market condition' is synonymous with
'Major Auction' (except when Major and Minor Auctions are the same).

Bracketing: This is a balanced, bell-shaped market with well defined
center (value) and upper and lower limits. A bracketing market can be
traded either for breakout (start of trend) or responsively (continuation
of bracket). Short timeframe traders control brackets.

Test: A bracket in which price exceeds a limit (breakout) only to
return to the bracket. Tests may occur several times over a number of days
before a trend starts. Conversely, a test may go no further, and not result
in a breakout. Tests are analogous to the well-known false breakouts that
are the bane of moving average methods. Testing markets are a contest
between short and long timeframe traders.

Trend: Concerted market price movement characterized by a run-pause
scenario. A trend begins when price breaks-out from a bracket. In trends,
value tends to lead price until near the end. The market runs and then
pauses because of trader uncertainty about the location of value. This
process is graphically evident on the Overlay Demand Curve. Trends are
driven by the long timeframe traders.

Trend End: Trends may end in a whimper or a bang. If price has tracked
value steadily, the trend ends smoothly when value stops moving. Then the
last pause will become the nucleus for the growth of the new bracket, or
price will fill in the region between the last two pauses, forming a
larger new bracket. If value has been changing explosively, the
probability of a substantial overshoot is greater, with accompanying
volatility at the end. Trend ends are where the long timeframers
relinquish control back to the short timeframers.

Four Types of Trading on the Floor: The Participants

Floor Members: These are the 'middlemen'. They do about sixty percent
of volume. They seek a well defined fair price, and hence are happiest
with balanced markets. Known as 'short timeframe traders', they are in
control during the initial balance, or approximately the first hour of
the trading day. Floor members end the day with no open trades. Floor
members are identified as Cti1 in the Liquidity Data Bank Report

Commercial Members: These are the 'businessmen' on the floor. They trade
for their institutions. They know value better than any other type of
trader. They are in control in balanced markets, where they buffer the
edges of the distribution. Commercials end the day either hedged or out
of the market. Commercial members are identified as Cti2 in the
Liquidity Data Bank Report

Off Floor Members: Members trading from screens outside the floor.
Otherwise very similar to Floor Members. Off floor members are identified
as Cti3 in the Liquidity Data Bank Report

The Public: (members trading for): Speculators, funds and all others
outside the first three types. This type takes both long and short term
positions in the market. Usually long timeframe traders, they dominate
the trends and drive prices away from the center (value) in balanced
markets. The Public ends the day with positions open, creating demand.
Members trading for the public are identified as Cti4 in the Liquidity
Data Bank Report

Two Primary Market Time Frames

Major Auction: The phase of the market cycle the market is currently in
(Bracketing, Testing, Trending or Trend End). The Major Auction is found
from the Overlay Demand Curve. It provides the framework for all trading
decisions. There can be overlap between the Major and Minor auctions during
Test and Trend End. At times, everyone is a short timeframe trader--the
public because they are exiting and the others because it is their nature.
When all participants are short timeframers the volatility of the market
becomes excessive. This is a good time for the public trader to stand
aside.

The Minor Auction: 'Here and now activity' within the current phase of
the market cycle. A Minor Auction trend could be underway within a (Major
Auction) balanced market. Analysis of the Minor Auction not only shows
what is currently happening, but can also provide information on the
probability that current behavior will continue.



Two Primary Trader Time Frames

Short Timeframe Trader: Floor members, commercials (sometime), off floor
members and public (at trend end). Provide about 80% of trading volume.
Must trade. Floor controls market's first hour (initial balance).
Commercials control balanced markets (buffer tops and bottoms). Short
timeframers like stable, balanced markets. Can support slow trends.
Short timeframers must trade, it is their living.

Long Timeframe Trader: Commercials (when buffering tops and bottoms),
Public (except at end of trend). Provide about 20% of volume. Do not
have to trade, pick advantageous entries. Are present beyond the initial
balance, their entry moves the market. Drive trends.

The ratio of long/short timeframers mix varies. Market understanding
comes, in large part, from isolating and understanding, collectively,
what each timeframe trader is doing.

Online (day) trading is more popular than ever.
As a job, a career, the benefits are many and obvious (be your own boss, work at home, level of pay comes directly from your efforts, etc.). Not so obvious are the drawbacks (you can lose and many do, stress from losing, stress from not understanding the business, etc.). Probably the sorest point with online traders is that they really do not understand how auction markets function. Everyone will agree that it is difficult to become a successful bricklayer without training, without understanding the business. The same is true of trading and any other profession.

Many Day Traders do Technical Research.
There are at least 100,000 copies of database management/technical research programs in use. The users have databases, some striking charting abilities and the capability for all sorts of optimization on moving averages, oscillators, ticks, etc. It is a good business for data providers, but, some 90+% of public traders lose. Why? Some claim they are victimized by the brokerage industry, others have bad luck, yet others practice poor money management, etc., etc. No doubt there is some truth to these claims. But the biggest problem is that the wannabe traders are working from a faulty premise. The premise is that technical analysis (TA) can tell one where to trade, i.e. solve the trading equation. The fatal flaw is in the data. TA uses open, high, low, close, volume and open interest. The prices (o, h, l, c) fit into the TA equations, but oddly, have little relevance to solving "the trading equation". The market responds to change in value, not change in price. Price is an inexact marker of value. A major problem with TA is that two of the four daily prices (high and low) are quickly rejected by the market and hence are not representative of the day's value. With at least half of the price inputs questionable, is it any mystery that calculations from these data are also of questionable validity? (this was covered in a previous post)

Auction Market Analysis is possibly the only theoretically based approach to trading. Value is the basis for market analysis, that value, not prices, is the proper research medium. Usually, the high and low prices are rejected by the market while the open and close may or may not carry valid information. Another technical quantity, the volume, has problems. A day's volume is a combination of trade, spreads and out-trades. The spreads and out-trades vary from day to day sometimes as much as 30 percent of the total. Research on irrelevant numbers cannot be expected to provide valid information. Putting faith in marginal calculations is an important part of the reason that 90+% of the public loses.

Again, I’m not saying traders cant or haven't exploited "timing" inefficiencies in the market using TA, however, Long-term traders trade Value, they also drive Markets , TA does not address Value. Any mathematical calculations performed on “prices” are not an allowed "practice" in AMVT.

Again, Im not knocking other peoples analysis, But I do trade “Auction Markets”. So, I personally prefer to use the tools, the data, and the rules that govern them. If you trade “Auction Markets”, why not educate yourself in “Auction Market Theory” & principles???

Candlesticks, a Critique
By Donald L. Jones

There is no 'trading university'. A potential trader typically looks for training and educational courses on the internet or through a brokerage firm. Most of these sources have a goal, brokerages to get the new person trading as soon as possible; purveyors of courses to get the newbie to take their course. Neither route seems to be very successful, since it is reported that some 90 to 95 percent of new traders fail within their first year.

The courses often teach a goodly amount of worthwhile information; a respect for leverage, a reasonable approach to risk management and so forth. Most courses fail where the rubber meets the road, at the trading model level. Most analysis schemes rely on some sort of smoothing, e.g. moving averages and oscillators. Some use an elegant display method called 'Japanese Candlesticks'.

Candlesticks Defined
Darrell Jobman, the former editor of Futures Magazine, discusses Candlestick charting, pointing out that they "emphasize the open and close and put less weight on the high and low". Further, compared to standard bar charts, "the open is much more significant for the candlestick chartist". Also, "the difference between the open and close makes up the 'body' of a time period's trading range. "It actually often looks like a candle with a wick or a tail known as a 'shadow' at either end. "If the closing price is above the opening price, the body is clear or white:, if the price at the close is below the open, the body is solid, or black." Jobman goes on to say: "Generally a series of clear or white candles indicates an uptrend or bullish market...." And he states: "A series of solid or black candles indicates a downtrend or bearish market....." Lastly, "The color and length of the candlesticks themselves provide a quick visual clue as to whether buying or selling dominates the market."

Jobman continues: "...any candlestick analyst will tell you one candle is not enough to make a trading decision." Further, "(candles) should not be viewed in isolation apart from other technical evidence".

Although there are many candlestick patterns, there is a certain firmness to the definitions. The forms defined are real and, to some degree, measurable. It seems possible to develop a computer code of a series of open, high, low and closes, tracking a market from a candlestick viewpoint.
Giovanni Maiani developed such a program, reporting his results in Stocks & Commodities Magazine in November 2002. He reports analyzing 575 American stocks over a period of 15 - 20 years. He found more than 6.14 million candlestick formations. In his words:

"The most reliable, long lower shadow, is present 1.9% of time, and anticipates a declining session 49.12% of time; a rising session 40.61% of time. For traders who are quantitatively based, candlestick patterns are not terribly useful"

Subsequently, Robert Colby, writing in SFO Magazine, Aug., 1996, found "No Major edge for Candlesticks". Further, he states: "Nevertheless, the candlestick patterns tested here failed to beat the simplest trend-following standard of comparison on a significant basis."

Steve Nison, the creator of Candlesticks, responded (S&C Jan 2003, p74) that Candlesticks are "A tool, not a system", and that you need to know the trend to use them.

However, in his article in Active Trader Magazine, January 2003, 'Candles Shed Light on the Market', one of the benefits of candle charts, Mr. Nison states, "Candle charts not only show the trend of the move, as does a bar chart,...."

We feel that if you already know the trend there is little reason to use something that we, at least, would use to find the trend. From Jobman's description, it would seem that, unlike Mr. Nison's letter to the editor, traders do look to candlesticks for directionality. As is clear from his article in Active Trader, Mr. Nison does claim candle charts show directionality.

Recognizing trends is important. The sooner, the better. After all, it is the trader's job to get aboard a directional move and to exit when congestion sets in. It certainly appears that traders think they are divining directionality from their candlestick charts, and the courses that use candlesticks for their modeling are doing the same. If Mr. Maiani's reserch is to be believed, candlestick charts are not a very good way to find directionality.

An Aside on Technical Analysis:
In the Japanese Candlesticks technical method, the basic element is a cylinder with open and close as cylinder limits; with the high and low spiking above and below the open/close base. It is well known and consistently observed in profiles that the high and low prices are rejected quickly by the market. So it appears that candlesticks are giving most weight to prices the market quickly rejects. Consequently, it is no surprise that Maiani found candlesticks to be of little use for trading decisions. Candlesticks and other charts do have the value of offering a panoramic view of market history. While of little use for current, day-to-day trading decisions, a general view of one's market is worthwhile for understanding a market in general.

Using the high and low prices for trading decisions, or emphasis in charting is simply making important decisions from poor data. Many technical calculations use the same data in much the same way and suffer the same defect.

Hi MzVega,

Post 100 and post 103 - I read both twice slowly, understood. Thanks for posting. Not looking for chart patterns for sure. Willing to work with data.

Prem

Hi MzVega,

Please post.

Prem

What's the point?



You want to use tools in order to get a better picture of the auction process. YOU have to do this work. You do not need Mzvega, Jones or Dalton. They do not trade for you. am I right?

All the informations you need are already posted. What are you waiting for?

@ prem

From FAQD
QD.32 Why do you use TPO volume instead of contract or tick volume?

Ans. TPO volume typically gives a smoother distribution than contract volume.
A single large trade near the high or low of the day can skew the value
area. LDB volume is not available for all markets (CBOT & CME only).
Tick volume is not 'market generated data' because there is no time-
price correlation in it's display.

(Again, tick volume/tick volume at price….not an allowed practice in “Auction Market Theory”)

http://www.cisco-futures.com/faqd.html

Trade Facilitation Factor (TFF) Reference Point

The Trade Facilitation Factor is defined in terms of TPO's, (Time-Price
Opportunities, or That Price Occurred). So, first we define the TPO:

Time Price Opportunity (TPO)

In the Introduction we saw the idealized Market Profile, described
by TPO's. No matter how many times a particular price trades in a specified
half-hour period, only one TPO is recorded. A Market Profile results when all
the TPO's at each price are posted (see Below). The more TPO's there are at
a price, the more often it was visited during the day.

Trade Facilitation Factor (TFF)
The Trade Facilitation Factor is based on the price events on standard
half-hour bars, where there can be no more than a single occurrence (TPO) at
any price per half-hour.

The TFF is defined as the number of TPO's divided by the number of price steps
(the range). In the example above there are 38 price steps that traded on
February 27. Since there are 114 TPO's (count them!), the TFF = 114/38
or TFF = 3.0.

Limiting values of the TFF occur at perfectly un-facilitating markets (a locked
limit market with trading throughout the day at that single price), and
perfectly facilitating days (a trend in which each period moved through many
prices. Totally un-facilitating markets will have a TFF that equals the number
of periods (for bonds TFF maximum is 15 --M period is not counted). Maximum
facilitation is one TPO for each price, or TFF = 1. A TFF = 1 market is the
ultimate trend, one with no pauses.

For most markets, when TFF nears 4, the market is poorly facilitating
trade. Fluid markets will have TFF around 2.5. T-bonds are an exception
in that poor facilitation there occurs around TFF = 6.

Markets that are not facilitating trade are often coalescing into a critical
mass. Traders are sitting on their wallets -- unusually low volume is
reported. Something is going to blow. Large TFF's are an alert. This is a
very reliable tip-off. Direction is not indicated by the TFF.

Recap:
The TFF is one way to measure congestion. We are particularly interested in
the potential for a market to "continue". The prediction of continuation is
a tool we use in deciding whether to stay in a trade or exit. A trending
market that begins congesting is warning us that the trend may be over. Many
reference points are used to throw some light on continuation. TFF is one.

Even CME “tick volume” is not very good representative of “Real Volume” which is only reported once a day at CME.
Another reason why “Price” based data, is an un-allowed practice in AMVT

http://www.cmegroup.com/market-data/...ce-faq.html#q2

Q2:
Why doesn't the volume listed in Volume by Price match the volume shown on the Ticker?
A2:
Volume by Price does not contain Cabinets, Transfers or As Of Trades (out trades). Ticker volume does not include cash for futures. Therefore, the ticker volume will always be approximately 5% greater than half of the Volume by Price total. This is also the approximate percent of outrades we have daily.


Q3:
What is the difference between Volume by Tick and Volume by Price?
A3:
Volume by Tick includes all available ticks, including those ticks that had no volume traded that day. Volume by Price (not available real time) has data only for prices where volume exists.

Market Flow
Markets are complex. A number of variables (reference points), are needed to make up the whole. Mathematically it means that a distribution function describing an auction market cannot be found. For the ordinary trader, 'complexity' means there is no one variable, like volume, that can do more than describe a small piece of a market. Generalizations of the sort 'if this' then 'that' for any particular variable (e.g. volume, volatility, initial balance, etc.) is not enough to provide guidance. A more comprehensive approach is necessary.

AMVT is to measure a number of descriptors, group them and take a consensus. Two kinds of descriptors are used: price directivity (higher or lower) and market activity (increasing or decreasing). A third set, derived from the first two, is predictive (which way the market is leaning).

Market variables (reference points) from the Overlay profile tracks a dozen or so directional markers (price, profile, initial balance, etc.) and about half as many activity markers (volume, volatility, trade facilitation, etc.).

AMVT nets out the 'flow'; what the market is currently doing (as of the end of the day). These measurements are 'positional', the positions held EOD. Any one of the descriptors (reference points) is merely a part of the whole picture. The goal of using a Flow Table is to predict the market's most likely flow direction for the coming day. The preparation for developing a day trading set-up for the next market day.

Three general types of data are tracked: market direction (up or down), market intensity (increasing or decreasing) and a directional prediction based on the other two. If a market is in balance/congesting (5, 10 or 20 days), that is shown along with the congestion limits and estimated risk for a breakout trade.

The Overlay Profile set provides market condition (balance or not), whether market activity is increasing, decreasing or non-directional; and indirectly, the general flow or tilt of the market.

Observation of the 5, 10, 20 Day Overlays and the Rotation Profile offers a general view of a market's behavior: where it has been and how it got to this point. This includes both objective information (balance limits and the directionality of the individual reference points) and subjective data (sum of directional markers, attempted direction, etc.).

The five day Overlay is in balance (Bracketing), with limits of 89200 (upper) and 86650 (lower). The value area upper limit (VA U) is 87625, lower limit is 87200, POC is 87450.

The fact that this market is congesting might lead to the conclusion that since the market is in equilibrium the flow direction is flat. That is not necessarily so. Markets run and pause, run and pause, forever. A pause is always temporary because a breakout and run is just around the corner (maybe the next trading day, or the next, or...). Furthermore, how far away the next run is cannot be known with any certainty. It is true that a breakout from a longer term (several days) balance is going to happen. Also, it is generally the case that a balanced market gives some signals that it is getting ready to move; there is directional flow.

AMVT methodology does not require a balanced market. All markets display the run - pause behavior. This has been demonstrated in long (multiday) timeframes, in intra-day timeframes of 90 minutes and now in timeframes of a few minutes.

In all cases the Overlay provides the data for market flow measurment.


Reading, Deciphering
The Overlay data above is for UU July 10, 2009. The H and L x's are a positional tally of the overlay reference points. At the end of that day a tally of the reference points leads to the market flow.

The Directional elements add up to three higher and eight lower (Net = +5).
The settlement price is lower (87425 vs 87900).
The Activity elements have four greater and one smaller (Net = +3).
Predictive is one up and one lower. Predictive is not used in the Net count.

What is the conclusion for the Flow?

Directional: lower: Activity greater: Predictive: not used.
Conclusion: Flow direction is down. More activity could presage a downward move. However, the market ended in a balance (89200 upper limit, 86650 lower limit). The balance suggests that the observed internal flow is possibly merely fluctuation in a congesting region.
For Monday then, the jury is out. A Breakout always trumps the flow direction reading.

An examination of the Visual Graphic for July 13 confirms our analysis of the previous evening. The day started out above the lows of yesterday and, after the first hour, showed strength the rest of the day. An upside breakout occurred fairly late in the day and the close is above the breakout price.


Limitations of Reference Point Analysis

As stated above, Table 1 comes from positional information in the Overlay. This positional information on sixteen reference points generates a single result, the flow direction. It is human nature, supported by the holistic nature of Steidlmayer's profile analysis, to want to select individual reference points for predictive purposes. The difficulty with this path is the nature of markets, the fact that auction markets are complex. That complexity shows itself by the varying importance of any one reference point. A popular reference point is the volume. In Mind Over Markets, pages 192 - 193, there are 30 volume analyses that are applied to directional performance. But in a complex situation there is feedback and non-linear interactions between the reference points. So it is dangerous to fixate on volume, or volatility, or trade facilitation or any other reference point. The net behavior of the group offers gross information, flow direction in this case. Taking too narrow a view, like betting on volume change, in most cases leads to disappointment.

The subject of this article is "Auction Market Analysis" from the standpoint of value, or Auction Market Value Theory.

Financial Markets
Auction Market Value Theory

Donald L. Jones
November 22, 2005
CISCO Futures

Introduction
Financial markets are the grease that lubricates national and international commerce. These markets are in a continuous state of price discovery, and it will be shown, of value discovery. Included are stock and options markets, commodities, bonds, forex and a wide variety of derivatives. All have a general commonality; they are openly traded and reported, price is set by auction and they must follow government and industry rules. Markets that meet these conditions are termed auction markets. The primary data generated by auction markets are their transactions, or ticks and sometimes, other items such as volume of trade and bid/ask. The subject of this work is "auction market analysis" from the standpoint of value, or Auction Market Value Theory.

Auction markets generate the world's largest money flows. Yet, their basic structure, the internals of how they work and what drives them, are not well understood. In the first section we briefly view trader's involvement with markets and approaches to market understanding. In passing it is noted that most traders do not "beat the market" and this includes possibly the two largest groups: public (noise) traders and the managers of mutual funds (insiders).

Section 2 examines the recent findings of the econophysicists. They have determined that auction markets are complex, self organizing and driven by feedback. This finding lies at the root of auction market value theory. We will find that the market's feedback becomes the principal arbiter, the limiter of how theory can be applied.

Section 3 addresses the types of analyses that the basic market structure (complex, self organizing and driven by feedback) can consider. These proposed practices may be permitted or not. The ability to evaluate a practice at the market structure level is new and a potentially powerful advance for all traders and risk takers. It is likely that the largest trading loss in history was based on a practice that would not have been permitted.

Feedback is the data track of the market. In Section 4, we will address it from the standpoint of market discoveries; methodologies that allow the decoding of feedback. Feedback, the market's continuing message, guides trading.

We cover:
1) The path of auction market value theory analysis and the three major discoveries, detailed in Appendix 1;
2) Basic market analysis that applies the concepts of feedback, day value and market condition (multi-day value); and,
3) A set of axioms and observations forming the basic principles of auction market value theory.

Section 1

Psychology, Predictions, Market Analyses
People feel the need to know why an individual market did what it did and they want to know what it will do next. Further, they want to know what the collective market will do and how far it will go (the big picture). There is a demand for this information and particularly in the case of equities, the marketplace (read brokerage firms and independent market pundits) will oblige. In general, a scientific study will attempt to ignore or minimize the biases and/or beliefs of the experimenter. With market analysis and auction market trading, biases of the traders can, at times, dominate market activity. Psychology is a very real factor in markets.

Most analysts predict market movement on the basis of a few factors. Sometimes they are right, sometimes wrong. Sometimes their market calls are colored by their firm's other needs. Correct predictions are selectively remembered. Consistently correct predictions are rarely if ever seen. Even single market factors such as interest rates are difficult to predict with even fifty percent success over so short a period as six months (10, p18).

While it is human nature to want to know the future, correctly predicting markets could be very profitable. Guides to trading are advertised in many trade journals, some with claims of large successes. What is being sold is often a simple methodology that can be of some limited value to a new trader. The excessive claims are the bait. Auction Market Value Theory (AMVT) does not predict the future direction of any market. This will be shown to derive directly from theory in the Practices section. What AMVT does offer is an understanding of the current market situation or phase (balance, trend). And it does offer a marker (value) that indicates change as it begins.

History of Market Prediction
There is a powerful impetus for one class of trader to predict market behavior, i.e. managers of mutual funds. Fund managers are judged by whether their fund prospers or not. Records are kept by numerous outside sources. In the history of equities only a few practitioners have consistently beaten the market (Templeton comes to mind). The standard of comparison is a moving target, a market index. A fund manager may lose 20 percent of fund equity and still be perceived a winner because the index lost more. Equities funds have the advantage of being net long in a long term upward environment. Traders in hedge funds, commodities, indices, forex, options and the like can as easily trade the downside as the up. Here, winning is clear and absolute. Again, acceptable results over a multi-year timeframe are scarce. Some hedge funds have done very well, indeed; some have lost excessively. It is hard to calculate a net figure because of lack of reporting. It is well known in the high-leverage arena of futures that 90 to 95 percent of new traders lose. In equities, short term trading may fare even worse, although few reliable statistics are available. The final analysis is that most reported trading classes lose and any predictive behavior did not save them. Further, the vast amount of money in mutual funds argues that that class of trader will uncover successful predictive methods, if such exist.

In view of the highly competetive nature of the fund business, it is fair to believe that fund managers use the best information available and the best possible management techniques. The search is always on for the better method. The question has always been "where can I find that better method?". We posit the answer is that that elusive "better method" lies in an understanding of the basics of market behavior, i.e. the better method starts with understanding market value.