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Auction theory. Auction theory is based on the fact that the market whose

primary objective is to facilitate trading among its participants under the

principles of the law of supply and demand will always move in search of

efficiency, also known as equilibrium or fair value.

Efficiency indicates that buyers and sellers are comfortable trading and

has clear control.

That comfort is derived from the fact that, based on current market

The valuations of both buyers and sellers are very similar.

The way in which this equilibrium is visually observed on a price chart is

a continuous shift up and down in the price.

These sideways movements of the price represent equilibrium.

It is proof that trading is being facilitated and it is the state that the

market is always in search of.

The contrast to this is inefficiency or imbalance.

which is represented by trend movements.

When new information reaches the market, it can cause the asset's value as

perceived by either buyers or sellers to change, generating a disagreement

between them.

One of these two sides will take control and move the price away from the

previous equilibrium zone, offering us a profitable trading opportunity.

What is evident in this context is that the market is not facilitating trading

and, therefore, is considered to be in an inefficient state.

The market will be constantly moving in search and confirmation of value, in

situations where buyers and sellers are in a position to exchange stocks.

When this happens, it is because the valuations of these participants of the

price are very similar.

At that moment, trading between agents will generate a new equilibrium zone

more. This cycle will be repeated over and over again without interruption.

The general idea is that the market will move from one equilibrium zone to

another through trend movements and that these will begin when the market

sentiment of both buyers and sellers about the current value differs, causing

imbalance.

The market will now begin to search for the next area that generates a consensus

about value among the majority of participants.

Variables The auction process in financial markets is fundamentally based

value. To try to work out the level of this value, you need to evaluate these

three elements.

Price. In the auction mechanism, price is used as a discovery tool.

The possibility of trading arises thanks to the movement of the price, which

fluctuates up and down, exploring the different levels with the objective of

seeing how the participants react to said exploration.

These price movements signal possible opportunities.

At the moment, The participants respond to this exploration believing the price

to be fair. They will start trading with each other.

Conversely, if these discoveries of new price levels are not perceived as

attractive by both sets of participants, it will lead to rejection.

Time. When the market offers up an opportunity, reaches an attractive

will use time to regulate how long the opportunity will be available.

The price will spend very little time in those areas that are advantageous for

one of the two sides, buyers or sellers.

An efficiency or equilibrium zone is characterized by the price remaining in

that area for a longer period of time, while a zone of inefficiency or

will be represented by a very short passage of time.

Volume. Volume represents activity, the quantity of an asset that has been

exchanged.

What this quantity suggests is interest or disinterest at certain levels.

Based on the volume, some areas are more valuable than others.

The basic rule of thumb is that the more activity a given area sees, the higher

the value placed on it by market participants.

These three elements provide us with a logical perspective about where market

participants consider the value of a particular asset to be based on the

conditions of the market.

Through the price, The market explores new levels. The amount of time the price

spends at these levels suggests that there is some acceptance in this new

and finally the generation of volume confirms that the participants have

a new value zone where they feel comfortable trading.

As we know, conditions are ever -changing and therefore these elements

be constantly reassessed.

Knowing where the value lies is key as it defines the condition of the market

which we then base our trading approach.

Perception of value.

The fact that the price is moving comfortably within a trading range,

development, represents acceptance in that area.

It is a context where price and value coincide according to the participants.

When the market is in a trend context, vertical development, price and value do

not match.

In this context, the price will move in advance and the value will follow or not

as a sign of acceptance or rejection.

In an equilibrium zone, the fairest price will be located in the middle

and the extremes.

Both above and below will represent unfair levels or levels not accepted by

participants.

Based on the fairest value being in the middle of the range, a move to the

higher end will be viewed by buyers as expensive, while sellers will view it as

cheap. So their actions will help send the price back to the fairest area.

Likewise, a visit to the lower end of the range will be seen as cheap for

and expensive for sellers, which will cause a new upturn.

This is nothing more than the usual range trading, where one side is looking

buy low and sell high, hoping that the price will continue to reject said

extremes. And normally, the market will continue like this until its condition

changes.

What's really interesting is when an imbalance occurs and the price leaves

value zone.

What happens then?

When the price leaves a trading zone, a change in the perception of value may

occur.

The trader's task is now to assess whether these new price levels are

or rejected.

The price moves in advance of the other two variables when it comes to

determining the potential areas of value.

But it is the time factor initially, and then that of volume, that will confirm

whether that new area is accepted or rejected.

We can interpret that this new zone has been accepted when the price is able to

maintain the level, over time, and quantities of contracts are traded

buyers and sellers, volume, all of which is represented by a certain sideways

movement of the price.

By contrast, we can identify rejection when the price quickly reverts back to

its old value zone, denoting a lack of interest and evidenced by a sharp turn.

All equilibrium zones end when there is no longer agreement among the

participants about the value, while all imbalance movements end when the price

reaches a zone where they are once more in agreement.

This is the continuous cycle of the market.

The idea in itself is very powerful, and with the right approach, you can build

trading strategies around it.

As this is the case with one of the universal principles of technical

price discounts everything, there is no need to evaluate what really produces

this change in the perception of value by the participants.

We know that based on current conditions, based on the information

that precise moment, all the participants have their own perception

price of an asset should be.

It is possible that something could happen subsequently at a fundamental

that changes said perception, but the advantage of this approach is that it

removes the need to know and interpret what has happened to change the

perception of the participants.

It is important to note that auction theory is universal and can be used to

evaluate any type of financial market, regardless of the timeframe used.

It is worth noting that the market spends most of its time in a state of

equilibrium, which is logical due to its very nature, based on the facilitation

of trading between participants.

This is where the accumulation and distribution processes take place, which

as we all know, the focus of the Wyckoff method.