To sum the Auction Theory up you always have to understand the context of a given market. Volume is variable and represents the interaction of market participants at different levels. Volume – Measure the success of failure of the auction. Price – Advertise opportunity in the market There are 3 key components of Auction Market Theory: This is eventually what every market does as Market participants negotiate prices between balanced and imbalanced values.Īuction Market Theory defines an area where 68% of the volume has traded as a Value Area. Where is the market likely to stop? Previous value area around $100. Sometimes pass, iPhones get repaired which means that buyers start to step back in the market. This is where is the new value area created. New iPhone comes out and its disaster, the battery is not working, it keeps shutting off etc.īecause of this event, Apple stock starts to dropping on its value until it finds new buyers at lest say $80 per share price. Let’s say that right now Apple stock is trading at $100. Using this logic, stock prices are easy to see an example. This doesn’t count only in trading financial markets but with other markets as well. In other words, the market is always seeking value based on supply and demand dynamics. When the price is going up or down, there is no supremacy on either side, but the amount of aggressivity or willingness to buy/sell for higher/lower prices.

This is not true since for every buyer there has to be a seller and vice verse. One of the thing what traders often say and it’s completely wrong when the market go fast one direction is it happened because there were more buyers versus sellers. The only purpose of the market is to facilitate trade through what is known as dual auction process. Auction Market Theory tries to breakdown the main purpose of the market and how the market participant interacts to fulfil this purpose.

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