Core concepts

A handful of terms do most of the work in auction market theory. Learn these and the rest of the library reads much more easily.

Value

Definition

Value is the price area where the most business was done over a chosen period — the market's working agreement on a fair price. On a profile it's usually expressed as the value area: the range holding about 70% of activity.

In-depth role

Value is not a judgement about what the S&P 500 is "worth". It's a description of where trade has been accepted recently. It moves as the auction moves.

Acceptance and rejection

• Acceptance — price trades at a level for time and builds volume. Participants are comfortable there.
• Rejection — price touches a level and leaves quickly with little trade. Participants refused it.

Excess

Excess is the trace a decisive rejection leaves behind — typically a sharp tail at the high or low of a session where one side aggressively ended the auction. It suggests that price went "too far" and the other side stepped in with conviction.

The opposite — a poor high or poor low, where the extreme is flat with no tail — suggests the auction stopped without a clear rejection and may be revisited.

Participants on different timeframes

Not everyone in the market is playing the same game:

• Short-term / day timeframe participants — scalpers, intraday traders, market makers — mostly create rotation inside value.
• Other-timeframe participants — funds, institutions and longer-term traders — are the ones who move value itself when they act with size.

Trading implication

Most intraday noise is short-term traders trading with each other. The moves that relocate value usually show the fingerprints of other-timeframe participants: range extension, initiative activity, and acceptance at new prices.