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Trading > Auction Market Theory > Flashcards

Auction Market Theory Flashcards

1
Q

“Much learning does not teach understanding”

A

Heraclitus /ˌhɛrəˈklaɪtəs/; 535 BCE

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2
Q

TPO

A

Time Price Opportunities: building blocks of Market Profile; a block is created when price has traded at a price level during a specific time block;

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3
Q

OTF (Other timeframe)

A

Outside Buyers and Sellers (longer term, not on the floor, bigger orders)

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4
Q

local

A

pit trader, market maker, middleman filling the orders of the OTF buyer and sellers; locals operate in the less than one day time frame as opposed to the OTF buyer and seller

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5
Q

Understanding what the OTF is doing is….

A

vital in successfully trading the futures market

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6
Q

major moves in the market are caused by….

A

the OTF, only OTF can move price substantially, the locals are not responsible for big moves*
* = not directly responsible

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7
Q

market profile range

A

refers to the entire height of the profile from High to Low

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8
Q

initials balance

A

represents the period of time in which the locals attempt to find a range where two-sided trade can take place (a range where both buyer and seller agree to conduct trade

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9
Q

all activity below the initial balance is…

A

OTF seller range extension

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10
Q

all activity above the initial balance is…

A

OTF Buyer range extension

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11
Q

the area where 70 % of the day’s business is conducted (roughly 1 SD)

A

the Value Area

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12
Q

single print buying tail indicates…

A

the OTF buyer responded strongly to price advertised below value; the longer tail the stronger

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13
Q

single print selling tail indicates…

A

the OTF seller

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14
Q

the longest line of TPO’s closest to the center of the range is called

A

POC Point of Control

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15
Q

POC Point of Control is…

A

the longest line of TOP’s closest to the center of the range

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16
Q

the closing range

A

the last indication of overall sentiment for the day; to compare as a reference point against the following day’s open to see fi the underlying market sentiment has changed

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17
Q

The market auctions up until…

A

the buyer will buy no more

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18
Q

the market auctions down until….

A

the seller will sell no more

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19
Q

the futures market is a constant auction looking for balance between who?

A

OTF seller and OTF buyer

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20
Q

you must understand what the OTF is doing and…

A

position yourself with them

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21
Q

Initial balance is what? (OR)

A

the early morning market activity (slightly more ambiguous today than once was)

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22
Q

narrow OR or Initial Balance tends to…

A

be broken easier

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23
Q

Wider OR or Initial Balance tends to…

A

contain the days auction extremes

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24
Q

7 day types:

A 
No Trend
Normal
Neutral Center
Normal Var
Neutral Extreme
Double Distribution Trend
Trend
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25
Q

“Normal” day description

A
  • rarer than other types
  • generally wide initial balance
  • initial strong conviction by OTF, then counter move and/or little conviction for the rest of the day
  • both OTF buyer and seller are present after one drives the price, the other responds
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26
Q

Normal day will have fade or breakout set ups?

A

fading set ups

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27
Q

Normal Variation of Normal Day description

A
  • less conviction in the initial balance compared to Normal day
  • at some point the OTF enters the market and substantially extends the range, the initial balance is upset by OTF range extension
  • both OTF buyer and seller are present after one drives the price, the other responds (just not so much during the initial balance)
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28
Q

2 types of trend days

A
  1. standard trend day

2. double distribution trend day

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29
Q

Trend day description

A
  • high level of directional confidence evident throughout the day
  • the OTF buyer or seller remains in control from start to finish of the day
  • as the day progresses, the trend draws in new business, sustained price movement fueled by higher volume;
  • the OR forms either the high or low for the day
  • the profile of a trend day is thin and elongated
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30
Q

“one-timeframe” market definition

A

the price continues to auction in the direction of the trend without auctioning above/below the previous time-periods highs/lows. A trend where either the OTF Buyer or the OTF Seller is clearly in control.

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31
Q

Double Distribution Trend Day description

A
  • narrow initial balance
  • change in event later in the session causes OTF Buyer or Seller to extend the range;
  • the auction stops and balances at the newly extended area
  • it is not as strong as a standard trend day in that it needs more time
32
Q

the center single prints of a double distribution day can indicate what if price auctions back into the single prints?

A

if price auctions back into the single prints during the patter time periods, making them double prints, something has changed and the second distribution is no longer accepted as value;

33
Q

Nontrend day description

A
  • complete lack of directional conviction, no activity
  • often prior to big event, holiday, new, number
  • position balancing
  • often a narrow range
  • the OTF is not present, the market is waiting
34
Q

Neutral Day description

A
  • the OTF Buyer and OTF seller are not far apart on their view of value
  • both OTF Buyer and OTF seller are present but market auctioning back and forth between them;
  • market in balance
  • medium width initial balance
  • there will likely be range extension on both sides of the initial balance
35
Q

2 types of Neutral days

A
  1. neutral-center: the day closes with price in the middle of the range, indicating balance between the OTF Buyer and Seller;
  2. Neutral-Extremem: the day closes in the upper or lower extreme of the range, shows that either the OTF Buyer or Seller won the day
36
Q

2 day types with the most directional conviction

A

Trend and Double Distribution Trend Days

37
Q

2 days types with the least direction conviction

A

No Trend and Normal

38
Q

3 day types with medium directional conviction level

A

Neutral-Center, Normal Variation, Neutral-Extreme

39
Q

3 day types known for narrow OR

A

Normal Variation, Double Distribution Trend, Non-Trend

40
Q

without considering time, there is no way to judge value and trading becomes…

A

a 50-50 gamble on price movement

41
Q

time validates…

A

price; Price x time = value

42
Q

the more time (TPOs) that price stays at a level…

A

the more valid value is being accepted at that level

43
Q

The big picture is made up of…

A

Market Structure, Trading Logic and Time

44
Q

The Market Structure (the profile graphic) cannot reveal fundamental changes in the market because…

A

Fundamental changes occur in the market before they are revealed through time on the structure

45
Q

Fundament changes will be indicated in the form of time and logic before

A

Market Profile Structure

46
Q

Traders who rely exclusively on structure without integrating time and logic will be…

A

late in entering and exiting the market; and poor trade location

47
Q

visible information and opportunity are __________ related.

A

inversely

48
Q

the more structural information present then the…

A

less an opportunity still exists

49
Q

If all the evidence is present and visible, then you are far from the first to have acted on it and…

A

probably have poor trade location

50
Q

seasoned traders with whole-market understanding use…

A

logic and time and support logic and time with the structure

51
Q

Logic creates the ______, time generates the _______ and structure provides the __________.

A

impetus, signal, confirmation

52
Q

an understanding of ______ and _______ (and not the profile graphic) are necessary to take advantage of trading opportunities as they develop, not after they have passed

A

Trading Logic and Market Time

53
Q

5 things in the profile graphic to evaluate when determining OTF control

A

range extension
tails
activity occurring in the body of the profile
value area placement relative to previous day
is OTF responsive or Initiating

54
Q

TPO

A

Time price opportunity

55
Q

TPO also referred to and thought of as…

A

“Fairest price”

56
Q

We’re all prone to seeking only what we’re looking for … (Finish)

A

… Which keeps is from being present for what is actually happening

57
Q

It is the imbalance between _________ that drives the auction process

A

Time frames

58
Q

Information has no impact until…

A

… Individuals act on that information

59
Q

In order to avoid being blinded by price, four questions to constantly ask are?

A
  1. Which timeframes responded to price?
  2. How strong was the response (volume)?
  3. We’re the responders innovators, early adapters, early or late majority or laggards?
  4. We’re the innovators responding opportunistically to the late majority and laggards?
60
Q

Preparation should lay out tactical choices based on…

A

Potential outcomes

61
Q

“Excess” marks the end of one auction and…

A

The start of a new one

62
Q

During preparation for the next trade, after making predictions of what you expect to happen… (Then?)

A

Concentrate and imagine the opposite/different potential outcome, how that may look, and play out, so that you will recognize it when/if it happens.

63
Q

Three likely scenarios when trading within a balanced market

A
  1. Continue trade within balance
  2. Break above, below and fail continuation
  3. Break above, below and accelerate continuation
64
Q

How to measure overnight inventory

A

Take the market profile for the overnight session and determine if the majority of TPOs occurred above or below closing print of the last pit session. Overnight inventory is neutral if the the TPOs are evenly distributed above and below the CP.

65
Q

If overnight inventory gets too long or too short the odds are good that…

A

There will be an inventory adjustment in the opposite direction of overnight inventory shortly before or after the opening of the pit session.

66
Q

If overnight inventory is net long or short and there is no inventory adjustment near the pit open, it indicates…

A

A strong market in the direction of the overnight inventory (at least temporarily)

67
Q

Nonlinear auctions occur when the ___________ of _______________ is shattered.

A

Illusion of certainty.

68
Q

Traders are prone to overestimating how much they understand the market by looking at _________, and become overconfident by the __________ of ___________.

A

Price, illusion of certainty.

Think statistically about multiple potential outcomes

69
Q

When a big, quick, high volume intraday move happens what is next?

A
  1. This move is going to end when the late majority and laggards are all in and the innovators are on the other side of the trade.
  2. The early adopters will take the auction in the opposite direction where balance trade will occur while the participants contemplate what to do next.
  3. Are the innovators and early adopters OTF? Or DTF?
  4. They began as responsive (responding to price level), are they becoming initiative enough to take the counter move higher?
  5. Is the counter move attracting OTF?
70
Q

A low without a buying tail is called a ________. A high with a selling tail is called a _________.

A

Poor low. Poor high

71
Q

A poor high/low represents and auction that has not yet…

A

Been completed

72
Q

Buying/selling tails represent (one word)

A

Excess

73
Q

The lack of a buying/selling tail is called what? And may represent what?

A

Poor high/low may indicate that the market has gotten too long or too short.

74
Q

Poor high/low combined with what three things indicates that the market may be too long/short?

A
  1. Lower than relative volume
  2. Slow tempo
  3. Truncated profile
75
Q

An elongated profile indicates…

A

Continuation.

But a profile that is too elongated can mean the opposite.

76
Q

Auctions are a mechanism for…

A

Price discovery

Trading (4 decks)

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