All language subtitles for 2. Auction theory

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.