📈 Understanding Auction Market Theory — The Foundation of Price Dynamics
Many traders focus on price candles without contemplating the fundamental question: what is the market aiming to achieve?
Auction Market Theory simplifies this process into four key steps:
🟡 Establish Value
Initially, price determines a fair value—a balance zone where the majority of trading occurs. Approximately 70% of volume is concentrated here, representing the market's comfort zone.
🟡 Explore Extremes
Price extends beyond this zone. If it gets rejected, it returns to the value area. If it breaks through, we enter a phase of discovery, exploring a new price territory.
🟡 Imbalance
At this stage, momentum builds. A lopsided order flow generates sharp, directional movements. These aren’t levels to counter; they are trends to follow.
🟡 Rebalance
Eventually, the market takes a breather, either establishing a new fair value area or reverting to the previous one. Balance inevitably follows periods of imbalance.