Auction Market Theory says markets are two-sided auctions constantly seeking fair value. Price rotates to find where buyers and sellers agree (balance), then tests away (imbalance) to discover new value. Read it right, and you’ll anticipate who’s in control, what type of day it is, and where trades make sense.
Core Concepts (Fast)
- Value: Where the market spent time/volume (fair prices).
- Balance vs. Imbalance: Chop around value vs. decisive moves away from it.
- Excess: Sharp tails/wicks at highs/lows → auction likely finished there.
- Poor High/Low: Flat/untested extremes → auction likely unfinished.
- Range Extension (RE): Price pushes beyond the Initial Balance (IB) → initiative activity.
- Responsive vs. Initiative
- Responsive: Fading moves back toward value.
- Initiative: Driving away from value to set new value.
Tools to See Value
- Volume Profile: POC, Value Area (VAH/VAL) ≈ 70% volume region.
- VWAP / Session VWAP: Real-time fair value lens.
- Open Types (context):
- Open Drive (trend from open), Open Test Drive (quick probe then drive),
- Open Rejection Reverse (reject one side → drive to the other),
- Open Auction (rotational).
Day Types (Why It Matters)
- Balanced/Normal: Rotations inside value; responsive trades shine (fade VAH/VAL back to POC).
- Trend / Trend-from-Open: One-sided initiative flow; pullbacks to VWAP/POC often hold and extend.
- Neutral: Range extensions both sides; later session often picks a winner.
- Double Distribution: Early trend, midday balance, late continuation; trade the new value area.
Playbook Setups
1) Value Reversion (Responsive)
Context: Balanced day; price rejects VAH/VAL with excess.
Entry: Reclaim back inside value (confirm with order flow).
Stop: Beyond the excess wick/structure.
Targets: POC first, then opposite value edge.
Avoid: Fading on strong initiative days.
2) Range Extension Continuation (Initiative)
Context: Strong push beyond IB with volume; pullback holds above/below prior edge.
Entry: Retest of IB edge/VAH/VAL that holds + momentum cue (delta/footprint).
Stop: Just inside prior balance (invalidates drive).
Targets: Measured move, prior day H/L, or trailing along VWAP/volume nodes.
3) Excess Reversal (End of Auction)
Context: Spike to new extreme leaves long wick + absorption (excess).
Entry: Failure to continue + reclaim of breakout level.
Stop: Beyond the excess high/low.
Targets: Back to value (POC/VA), then opposite edge if momentum persists.
Confluence That Matters
- Profile Levels: POC, VAH/VAL, single prints, low-volume nodes.
- VWAP: Fair value magnet or dynamic trend guide.
- Prior References: ONH/ONL, prior day H/L, weekly VWAP/POC.
- Order Flow: Delta shifts, absorption/icebergs at edges.
Position Sizing & Risk (Always)
Risk 0.5–1% per trade. Use invalidation, not round numbers, for stops. Aim for ≥2R unless context justifies otherwise. Never add to losers; scale only after +1R.
30-Second AMT Checklist
What’s the day type likely to be (trend vs balance)?
Where is value (POC/VAH/VAL) and VWAP? Above/below?
Responsive or initiative plan today?
Key references: IB, ONH/ONL, prior H/L, LVNs.
Trigger + invalidation defined; size by formula; target ≥2R.
Daily max loss = 2–3R.
Journal R, MAE/MFE, rule adherence.
Bottom line: AMT turns random ticks into a readable map of who’s winning the auction and where price is fair vs. unfair. Trade context first, entries second—and let risk rules compound the edge.
Kimatix Trading — Trade the plan, not the hope.