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

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primary objective is to facilitate
trading among its participants under the

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

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efficiency, also known as equilibrium or
fair value.

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Efficiency indicates that buyers and
sellers are comfortable trading and

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has clear control.

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

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The valuations of both buyers and
sellers are very similar.

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

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a continuous shift up and down in the
price.

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These sideways movements of the price
represent equilibrium.

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

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market is always in search of.

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The contrast to this is inefficiency or
imbalance.

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which is represented by trend movements.

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

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

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between them.

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

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previous equilibrium zone, offering us a
profitable trading opportunity.

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

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

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

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

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

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price are very similar.

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

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

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

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

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

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imbalance.

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

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about value among the majority of
participants.

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Variables The auction process in
financial markets is fundamentally based

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

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three elements.

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

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

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

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seeing how the participants react to
said exploration.

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These price movements signal possible
opportunities.

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

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

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

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

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

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

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

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one of the two sides, buyers or sellers.

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

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

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will be represented by a very short
passage of time.

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

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exchanged.

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

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

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

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the value placed on it by market
participants.

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

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

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conditions of the market.

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

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

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and finally the generation of volume
confirms that the participants have

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a new value zone where they feel
comfortable trading.

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

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be constantly reassessed.

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

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which we then base our trading approach.

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Perception of value.

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

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development, represents acceptance in
that area.

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

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

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not match.

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

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as a sign of acceptance or rejection.

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

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and the extremes.

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

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participants.

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

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

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

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

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

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

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

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

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changes.

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

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value zone.

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What happens then?

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

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occur.

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

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or rejected.

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

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determining the potential areas of
value.

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

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whether that new area is accepted or
rejected.

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

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

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

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movement of the price.

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

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

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

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

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reaches a zone where they are once more
in agreement.

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This is the continuous cycle of the
market.

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

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trading strategies around it.

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

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

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this change in the perception of value
by the participants.

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

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that precise moment, all the
participants have their own perception

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price of an asset should be.

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It is possible that something could
happen subsequently at a fundamental

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

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

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perception of the participants.

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

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

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

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

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of trading between participants.

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

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