The Auction Market Model

The Market Profile and Expanded TPO graphics are powerful analytical tools for quantitative traders. Thinkscript® studies can be applied to the segmented auction graphic.

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.

Cumulative Volume Delta

Cumulative Volume Delta (CVD) plots aggregate differences in buying and selling volume. When large lot transactions are displayed against a CVD plot and considered in the context of liquidity and the auction process, a picture of aggressive buying and selling pressure is revealed.

Scenario Analysis

Trade entries and exits require decisive action and have impactful consequences. Rapidly looking for hidden information in options volume, gamma, and implied volatility while gauging order flow dynamics against an auction market backdrop… is a difficult task.

This Thinkscript®-based study checks for 24 auction-based, long-short scenarios commonly encountered at key reference test levels. When all of the qualifiers for one of those scenarios is met, the price bar is flagged. Many of these scenarios capture market conditions linked to negative tests and entry at the next OHLC4 position puts the trade in line with the market ~88% of the time.