Lesson 1 of 4 · 2 min
What is AMT?
The idea that markets exist to facilitate trade, and that price moves to find the participants who will do it.
Auction Market Theory (AMT) is a way of describing why price moves, rather than predicting where it goes. It starts from one observation: a market's job is to facilitate trade. Price moves around until it finds levels where buyers and sellers are both willing to transact.
Definition
Auction Market Theory describes markets as a continuous two-sided auction. Price advertises opportunity by moving to new levels; time and volume at those levels show whether participants accepted or rejected the advertisement.
Price advertises, volume answers
When price moves up, it is effectively asking "is anyone willing to sell here?" When it moves down: "is anyone willing to buy here?"
- If price reaches a new level and trade picks up, participants accepted that price. The market tends to stay and build there.
- If price reaches a new level and trade dries up, participants rejected it. Price tends to leave — often quickly, and often back toward where business was being done.
Key Insight
A fast move through a price is not "strength" by itself. It can simply mean nobody wanted to trade there. Strength is when the market moves and then builds business at the new level.
Where AMT came from
The framework grew out of Market Profile, which J. Peter Steidlmayer developed at the Chicago Board of Trade in the 1980s to organise trading activity by time and price. The tools in this library are modern ways of measuring the same auction.
Trading implication
AMT doesn't give you entries. It gives you the first question on every chart: is the market currently looking for value, or trading at value? The answer decides which kind of idea even makes sense today.
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