Information-driven Trading Activity

The single most important indicator of future price performance is the eagerness of major investors to put money into an investment. Today, we can clearly see that eagerness reflected in the auction market profile distribution and segmented auction graphic.

The Market Profile® and Expanded TPO graphics [Figure 1] remain powerful analytical tools for quantitative traders. In short, an auction market analysis focuses on the shape of the price-volume distribution and the most frequently traded prices (most in demand). The central tenet of auction market theory is that a market in balance provides statistically sound reference levels, including “fairest price” or “value”. Rejected prices indicate a lack of value while range extension with acceptance argues for continuation.

Add-Ons for the Risk Averse

In today’s financial markets the speed of communication and calculation has produced increased bouts of volatility but, at the same time, has illuminated the actions of those participants who have the greatest impact on price movement. [Figure 2] And while trading algorithms systematically sweep large volumes across multiple exchanges, there has been no degradation of the auction-based price formation process nor the random walk.

For quant traders, market dynamics have never been more clear and concise — making “buy high, sell low” just a little bit easier.

 

 


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