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TheNegotiator

The very basics of 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.

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If this is the case, is it fair to say that traders need 2 completely different strategies?

 

1 for imbalanced markets, based on retracements.

1 fo balanced markets based on reversals.

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If this is the case, is it fair to say that traders need 2 completely different strategies?

 

1 for imbalanced markets, based on retracements.

1 fo balanced markets based on reversals.

 

yes, or at least variable approaches to the same strategy.

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If this is the case, is it fair to say that traders need 2 completely different strategies?

 

1 for imbalanced markets, based on retracements.

1 fo balanced markets based on reversals.

 

if you learn when you have to switch between strategies, you become successful..imho...

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if you learn when you have to switch between strategies, you become successful..imho...

 

"Exactamundo... [!!!!!]

 

...

 

Life's too short to dilly dally with the uncool."

 

Maybe Sam L Jackson in PulpFiction... but probably The Fonz...

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(

If this is the case, is it fair to say that traders need 2 completely different strategies?

 

Traders need more than two...

 

 

:offtopic:

Also - and hopefully this won't derail the "very basics" aspect of this thread - for a personal 'auction' representation/model to start being functional for me, I had to push my 'model' to include multiple simultaneous auctions, each with different 'structures' and 'competency levels' of it's members. This develops from differences along scales of centralization (and availability of options of whether to utilize the ' centralized' market or not ) and participants' vulnerabilities within an auction to uniform pricing mechanisms, etc, etc etc etc...

 

)

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I agree zdo that each trader's understanding and use of auction principles can vary to encompass aspects which are directly useful to them. I'd be interested to hear about your multi-level auction process. But really what I was getting at is that so many people do not start out trading with the idea that markets are auctions. Or at least they don't fully grasp the idea. Because of this, many strategies are "castles built on sand" so to speak.

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I agree zdo that each trader's understanding and use of auction principles can vary to encompass aspects which are directly useful to them. I'd be interested to hear about your multi-level auction process. But really what I was getting at is that so many people do not start out trading with the idea that markets are auctions. Or at least they don't fully grasp the idea. Because of this, many strategies are "castles built on sand" so to speak.

 

Only certain brains need to include auction constructs and ‘model’ it. Only certain types of thinking… Only certain perceptual frameworks. Most of the bulsht I ultimately learned about auctions wasn’t really necessary… but at the time it seemed to be an important part of my own ‘puzzle’… Was just relaying some of my journey… As some will be likely quick to attest, you certainly don’t have to be an expert in the in’s and out’s of auctions and auction types to be a great trader…

(and with that said …) your’s is a great point about “people do not start out trading with the idea that markets are auctions... Or… don't fully grasp the idea….many strategies are "castles built on sand" …” A great starting place for developing traders is to get really conscious of just how ‘bid’ vulnerable they are to uniform pricing mechanisms in the online ‘centralized’ auctions most of us participate in…how their own situationally ( and mysteriously also not ‘situational’ but internal) variable and subtle personal flavors of unconscious ‘price desperation’ interferes with performance… for all traders one of the key differentiations between ‘practicing to be a master’ and a ‘master practicing’

now must tear myself from the screen to go for golf lesson … it will be interesting to see if I can transfer ‘master practicing’ to that today ie

:crap:

to

:cool:

 

??

 

:)

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I would add a shade of grey to strategy ...tactics.I only change my strategy if the trend changes,but within that,different days require different tactics.

 

That is what makes the market, trading exciting. I like this challenge.

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It's just that you seem to be suggesting that if a trader doesn't think in terms of auctions then any strategy is doomed.

 

If there's no fundamental understanding of trading activity, even a very basic level, I believe it makes it much more difficult to be consistent in the long run or at least to evolve your strategies as markets shift.

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|s that why the so called 90% fail in your opinion? A lot of traders don't care why a market is doing whatever it's doing,they just go with it.A lot of traders say they wait for confirmation before making a trade.What i'm getting at i suppose,is whether there is a particular advantage employing the methods you use over and above other methods.That is one of the things with trading forums.There are many methods that traders use,but occasionally someone will give a good demonstration/make a strong case for a particular method.One might think mmm, am i missing a trick here? For example i rarely find that volume affects my trading decision/results so i tend to ignore it most of the time (rightly or wrongly).That's another topic where a member here can make a strong case for it,and again, you might think,am i missing a trick here?,should i take another look at it? This thread potentially falls in that category.And the other element in that is the messenger and how they are perceived.The way you are perceived here i would think would be in a far better light than a newcomer who we don't know,starting a very similar thread.But really,that should not affect they way the material is perceived.That is why the " castles in the sand" comment stuck out for me.Not disagreeing with the basic premise here,just saying there are many ways to trade a market,and that if you had to have good understanding of all the things you currently don't understand before you ever made a trade,the learning curve would almost never end.

 

Valid points. There are most certainly various different techniques and strategies to profit from the market and many of these are very effective. However, to improve your chances of success, an understanding of some kind of market conditions and phase is a valuable thing. Without context, candlestick trading methods for example are probably little better than a flip of a coin (this is not what I use to trade btw). When coupled with a sound knowledge of how the market is moving though, specific trading strategies can be applied far more appropriately.

 

I'll use an analogy (probably a bad one :D). To drive a car from point A to point B on a journey, you don't have to know exactly how to get where you are going. You don't have to even know the rules of the road in the particular country you're driving in. But unless you learn these things, isn't it likely that every time you get in the car, you'll either get lost and take ages to get to your destination if indeed you ever get there, you have an accident due to not knowing the rules of the road, or you get pulled over and booked so many times that you eventually have your license revoked? You could have Jenson Button style driving skills and still end up in any of these situations. The framing of a market's conditions in any way, auction or otherwise is not a strategy in itself. It's a roadmap/highway code, so you can use your trading strategy (or Jenson Button style driving skills) appropriately.

 

Anyway, I hope that makes some sense :wtf: lol

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|s that why the so called 90% fail in your opinion? A lot of traders don't care why a market is doing whatever it's doing,they just go with it.A lot of traders say they wait for confirmation before making a trade.What i'm getting at i suppose,is whether there is a particular advantage employing the methods you use over and above other methods.That is one of the things with trading forums.There are many methods that traders use,but occasionally someone will give a good demonstration/make a strong case for a particular method.One might think mmm, am i missing a trick here? For example i rarely find that volume affects my trading decision/results so i tend to ignore it most of the time (rightly or wrongly).That's another topic where a member here can make a strong case for it,and again, you might think,am i missing a trick here?,should i take another look at it? This thread potentially falls in that category.And the other element in that is the messenger and how they are perceived.The way you are perceived here i would think would be in a far better light than a newcomer who we don't know,starting a very similar thread.But really,that should not affect they way the material is perceived.That is why the " castles in the sand" comment stuck out for me.Not disagreeing with the basic premise here,just saying there are many ways to trade a market,and that if you had to have good understanding of all the things you currently don't understand before you ever made a trade,the learning curve would almost never end.

 

Every piece of information helps but having-using all of these tools are not completely necessary to come up with a trading plan...there are times making things complicated won't help...besides does it really matter what ingredients you use as long as the output is nice ;)

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