Auction Market Theory (AMT)
Introduction
Auction Market Theory (AMT) is a framework for understanding financial markets based on the principles of supply and demand.
Key Principle
Balance is always sought by price.
Market Mechanics
Markets operate through the interaction of buyers and sellers, where prices are determined by supply and demand.
- Highest bid: max price a buyer pays
- Lowest ask: min price a seller accepts
Bid-ask spread = difference between highest bid and lowest ask.
Order Types
- Market Orders: Buy/sell immediately at best price.
- Limit Orders: Buy/sell at a specified, better price.
Aggressive orders move the market by hitting limit orders.
Fair Value & Balance
When buyers and sellers agree, price stays stable. Imbalance causes price to move to a new balance. Smart Money prefers slow, steady moves to accumulate/distribute positions.
Analyzing Markets with AMT
- Where price spends more time vs. moves quickly
- Where more/less volume is traded
Market Profile / Volume Profile
Market Profile (MP): shows time spent at each price level.
Volume Profile (VP): shows volume traded at each price level.
Platforms like TradingView use tick volume, not real volume data.
* Tick volume is the number of price changes in a period, not actual shares/contracts traded.