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Showing results for tags 'market auctions'.
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Firstly, I would like to say that this is not a new concept, but we all would do well to remind ourselves of it or if you’re unaware of it, take some time to contemplate and understand it. The fundamentals the market are price, time and volume. But these are the just the ‘container’ for what the market is and the market is an auction. All markets are auctions of some kind. Participants buy or sell ‘looking’ for fair price. Once this happens prices stay within this area of fair price until new information about supply/demand, the economy, monetary policy, specific companies and generally anything which affects participants’ perception of fair price, becomes available. Then perception of fair price and therefore value becomes a motivational factor for participants and the previous balance between buyers and sellers is lost. Prices then move to find ‘new’ prices to trade until a new fair price can be agreed upon and new value established. This process repeats itself over and over and over again. In essence markets go from:- BALANCE - TESTING BALANCE - IMBALANCE in a continuous loop. To understand which phase your particular market is currently auctioning in and to identify important prices which define the auction, you need but a few simple ideas. 1) Is the market moving in one direction or is it constantly moving back and forth between recently traded prices? Despite this being a simple idea, not giving it due care and attention may lead to you go for big trades in balance and trying to fade (trade against the prevailing trend) the market when it is imbalanced. 2) Excess determines auction extremes. This is where price has moved so far that participants believe currently levels are unfair and so move swiftly to take them back to an acceptable area. Excess is useful to watch to as a gauge of change in current activity and as a reference for any retesting of the current phase. 3) Volume or time spent in an area is indicative of where participants have been most willing to do business and therefore is a gauge of value. This isn’t meant to be a pro-volume/market profile thread, although I do use profiles to easily depict the level of trading activity at different prices. If you have another way you prefer then that’s fine too. As a simple look at auction principles these are the things you need to be aware of. If I’ve missed anything you feel to be really important and fundamental, then please do point it out. Finally, just to say that auctions work on whichever timeframe you look at. So if you are a swing trader or a ust trader, using simple but important auction principles as the backbone of your method can be highly beneficial imho.
