Auction Market Theory is a method that explains the functioning of the market as such, regardless of the class of the instrument.

Auction Market Theory as an alternative way to play the stock market

Most of the material about playing the stock market will send you to technical analysis. Despite several advantages of this method, it is too poor to translate into a correct understanding of the market and, consequently, earning money. An alternative to it is the auction theory. Let's take a look at its basic principles that will make price fluctuations on the chart much more logical for you.

Fundamentals of the theory of auctions

The basis of the theory is the visualization of the rotating volume, i.e. the balance, which can then be analyzed for probability because it works on the principle of the Gaussian curve used in econometrics.

Auction Market Theory is a method that explains the functioning of the market as such, regardless of the class of the instrument.

Thus, it will prove useful if you want to speculate, for example, on the prices of shares of companies.

When looking for a broker with a wide range of these assets, it is worth getting acquainted with Saxo, when with the help of the auction theory you will complete your knowledge and understand how to invest in the stock market.

Tools such as VWAP, Footprint Chart and volume profiles, largely focused on the so-called reading the tape, i.e. analyzing raw data generated in real-time by the market.

Balance - the basic elements of the market

For most traders, a sideways trend is an undesirable state in the market, as opposed to a directional trend.

This approach forces us to take a lot of risk by trading after a sharp breakout or drop in price.

In auction theory, the sideways trend, or balance or rotation, is the most important element that can help us open a position at the best possible price. To learn more about it, check out this article. Additionally, you will find valuable information on imbalance and the interpretation of volume profile shapes.

Value area

If you look at any price chart, you will see that most of its time is spent in balances, occasionally moving between them.

The balance itself, i.e. the balance of the forces of supply and demand, is, in theory, the goal that the market wants to achieve.

In the process of looking for values, he reacts with old areas, accepting or rejecting them.

This is clearly seen in the example below.

By reading the chart from left to right, the price created a multiplication of the values ​​denoted by the symbol P1. Then we dealt with the breakout and test of this balance - TEST P1.

After creating the P3 and P4 areas, the price returns to the old regions, again testing the P1 balance and at the same time - accepts the P2 section, which in the eyes of the market once again becomes an adequate value.