Stage 1: AMT (Auction Market Theory) Flashcards
Why does the price shift?
Due to a shift in market value perception from the market participants due to a change of economical & fundamental data.
What is the nature of price around a profile?
Price tend to leave price/area with low/no value, to an area with Value.
What are the key price levels of the day to monitor the profile & side games with?
The Highs & Lows of the previous day(s)
What’s the key thing to start with at the start of a trading day?
Developing a Hypothesis for the day
Which markets is the footprint mostly useful at?
It is most useful in the Oil & Stocks markets than in the Currencies markets., and realizing market demand.
Why are many companies collecting data every day?
For the purpose of price discovery for the sake of measuring value areas.
What type of Statistical distribution do most statistical data show?
A Bell curve distribution
How is the data to realize market demand collected?
Through the use of Intelligent systems & technology, companies can collect REAL MARKET DATA from the market, for the purpose of measuring market deanmand.
What’s another name for Fair price & what does it actually mean?
Equilibrium price. it means that most market participants are satisfied transacting at those price levels.
What’s another name for Price discovery?
Market making
Key Questions:
- Why does the price move?
- How does the price move?
- The price moves because there is an excess of market orders wiping out the resting orders. (More Demand than Supply), or Supply running away (Bail).
- The price moves through PRICE DISCOVERY. Testing various price levels, so as to test levels of SUPPLY & DEMAND over time.
What happens when the price goes to the extremes of fair value in a balanced market?
Since in these regions, there is a short of demand, the price will tend to go back to the fair value, where every market participant was satisfied to transact in & decent levels of Supply & Demand.
What’s the nature of Imbalanced markets & fair value?
Imbalanced markets tend to find new areas of fair value. (They shift)
What happens when the price goes to the extremes of fair value in a balanced market?
Since in these regions, there is a shortage of demand, the price will tend to go back to the fair value, where every market participant was satisfied to transact in & decent levels of Supply & Demand.
How do you comment on the dominant forces in the financial markets?
The Financial markets, unlike any other traditional markets, do have multiple dominant forces.
So what does it mean when we say that there are a lot of Dominant forces in the Financial markets?
It means, Supply & Demand is always there & there is a lot of Liquidity.
If there is a lot of Supply in the markets, what then shall we be keying at?
We shall be keying at Demand, since Supply won’t necessarily move the markets, rather the Demand (Market Orders)
What do efficient prices mean & what are inefficient prices?
Efficient prices - This means that the chances of making a profit there are almost slim., Next to none. Financial markets are an example.
Inefficient prices - This means that the chances of making a profit are there—for example in Traditional markets.
If prices are so efficient in the financial markets, what does this cause?
Tiny profit pockets. (Or increments), due to lots of competition (Supply).
What is recently causing the prices in the financial markets to become even more efficient?
The advancement in technology
What can we decide now, if the financial markets are so efficient?
We should focus more energy in the demand side of the Financial markets rather than the Supply.
What causes market imbalances?
A change in fundamental data in the economy.
Is comparing candlesticks to candlesticks, right? (If not, what is right then)?
It’s not right. That is comparing an individual price point. Instead, do compare fair value to another fair value.
“CAUSE” & “EFFECT”, what does it mean?
It means we compare “VALUE” & “PRICE”.
How does the Volume profile build up over time?
When Transactional data come in.
How do we gauge the fair value in a chart?
Through the approximate Standard Deviation bands from the mean of a profile (Be it volume profile or Market Profile)
In Imbalanced markets, why are fair value areas of importance?
Since they are the places where the markets will go bounce off, or seeking new fair value.
In the financial markets, what element can we control of?, & What can we not control?
Time is what we can control. SUPPLY, DEMAND, LIQUIDITY, & DIRECTION, are those that we can’t control.
What controls the DOM nowadays?
The Algos
What does the DOM show as compared to the Volume Profile?
The DOM shows a wide range of values. While the Volume Profile shows the General condition & state of the market.
The market never trends, instead it?
Balances the Imbalances!
What are vanilla markets?
These are the markets which don’t have some structure into them. And they aren’t driven by variables like velocity, decay, and time, but rather by human emotions.
What are Structured markets?
These are the opposite of the Vanilla markets, they do move by some variables built into them like velocity, time & decay.
In relation to financial markets, what key Terms should we know:
- VWAP = uses mean
- VPOC = It’s the mode
- Standard Deviation = Are the Value Area High & Low Bands of the Histogram
Why does the Volume Profile build the way it builds?
Central Tendency due to the psychology of people doing things at a comfortable level.
VWAP, what does this mean calculate on?
It checks on where most transactions took place by price levels.
What’s the shortfall of the Volume Profile?
It created multiple distributions, as compared to the Market profile, which you can split & check on the real concentration of Market orders.
What’s the long-form ETH & RTH?
Electronic Trading Hours & Regular Trading Hours
What is the Initial Balance?
The first X period of Regular Trading Hours
What determines the pattern of the market?
The:
- Volume
- Market players
2 best markets to trade & why?
E-mini SXP500 & Crude Oil.
Because they do have a lots of Contracts liquidity, hence even the volume profile is clearly visible.
What’s the origin of the RTH?
RTH or Regular Trading Hours originates from the Historic Open Outcry at the Chicago Mercantile exchange, when traders were shouting to place & receive orders in he physical exchange.
2 best markets to trade & why?
E-mini SXP500 & Crude Oil.
Because they do have lots of Contracts liquidity, hence even the volume profile is clearly visible & hence better decisions while trading them.
What are the RTH of our best Assets to trade? (Crude Oil, & ES-mini)?
For Emini: RTH is 14:30 to 21:15 GMT
For Crude Oil: RTH is 14:00 to 19:30 GMT
What happens when a trading session: Say the RTH or ETH comes to an end?
The DOM resets.
What are the Key characteristics of the RTH session?
- There is a lot of liquidity
- It’s where most contracts are traded at
- It has lots of volumes
- Its Volume profile is nicely distributed
What are the key characteristics of an ETH session?
- Lots of illiquidities
- Low volume traded
- Volume profiles are highly thin & distorted
Why is the Market profile better compared to the Volume profile?
When merging, Volume profiles, say of a wider period of time, it tends to contain multiple distributions, making the VPOC & SD not correct (skewed).
So what’s the solution to the distorted Volume profiles when determining values?
The solution is to CREATE OUR OWN COMPOSITE PROFILES!, Marking contextual levels, through using MARKET PROFILE!
Why is the Market profile better compared to the Volume profile?
When merging, Volume profiles, say of a wider period of time, tend to contain multiple distributions, making the VPOC & SD not correct (skewed).
What data can we deduce from the Market profile?
Time price Opportunity (TPO). At what price did price spend how much time (How Long)
What is the main nature of the Volatile markets & their profiles?
Volatile markets are so illiquid, hence they do have a very thin profile.
What’s a Single print?
It’s a period in time of a market profile where there are only a Single TPO (A Letter), meaning at that particular period, the Market barely spent time at that price level.
What usually happens in Single prints of Market profiles?
The price usually zips through & never spends tie there.
What are Poor Highs/Lows?
Also called Unfinished Auctions, they are the regions where the market barely finished transacting. The TPOs there spent a brief amount of time.
What do Poor Highs/Lows (Unfinished auctions) cause?
They do cause Stop Hunts.
What is the Volume Profile & Market Profile have in terms of value?
Static value
What are the algos looking at, when prices come at the VAH or VAL?
They look for absorptions & Supply side games in those areas.
What happens in an Imbalanced market?
The value area shifts to find new areas.
What does the building of orders around the POC mean?
it means that, there is a possibility of markets to shift new areas of value & go Imbalanced.
What do we do around the POC?
We can start thinking of managing our trades
When checking the Contextual Areas & you are unsure, what do you do?
You split the profile & try to check & see what is the market trying to achieve between those two regions. And where it spent more time in (Whether spent some little time, or jetted off immediately).
How long should you at least hold your trades as a 1H Intraday trader?
3 days
How do you comment on Strong Profile days?
They are made by combining the Profiles of multiple days
Should thin profiles be merged in marking contextual levels?
No, thin profiles should not be merged in marking contextual levels., because there are no pockets of value built yet.
What happens in a Rollover & Composites?
The Composites tend to slightly shift, s you need to easily adjust them chap chap!
