The Auction Process
Traders within the Market Look at Value. Buy Low Sell High is a annoying Adige but it is one that is so true within the Auction Process that we speculate in. The skill is to determine value and position appropriately knowing the risks at the level you place a call or a bid. You must also know before placing what to do it your perceived value is not what you thought it to be.
The chart below shows value if you can recognize it. For Example Monthly pivot traders have different areas of interest then Weekly Swing traders however those areas can combine at the same price same time which makes for powerful confluence. With a Wider eye you will recognize more! with in the Auction it has a starting price and a objective selling price: Therefore bidders have a objective from one auction to another. You can divide the Auctions into 3 OPEN sessions which are New York, London and Tokyo. Each session as its opening price, inital balance and opening range. Traders percieve value for each session to the next.
The role of the marketplace is to facilitate trade between buyers and sellers. Price will auction higher and lower as it attempts to find an area where trade can be easily facilitated. If price opens too low, it will auction
higher to find sellers, and if price is too high, it will auction lower to find buyers. Buyers will enter the market when they feel price is below value, while sellers will enter the market when they believe price is overvalued.
Sometimes, price needs to probe higher in order to find a compromise between buyers and sellers, while other times price needs to probe lower before finding an agreeable price.
The market clearly sees value as outside or inside of value and that is the auction process. It is therefore a compromise of Time and value in session.
The Overnight Range (Out of Auction Values)
The Overnight Range is simply the New York Auction Close range to the Open of Tokyo. If We print the High and low of those two points you have already identified Value as they are significant support and resistance areas that the market will pay attention to and play out the remainder of the day as significant support and resitance.
In this example to day lets take a look at how the Overnight range was broken on the open of Tokyo. You can see the market times built in to the RSI and the Overnight range is signified by the brown lines on the below chart. NYC = Close TKO = Open.
The Initial Balance or know as the Opening Range
The Initial Balance is the initial time frame of trading a stock or currency at the start of each new trading session. (To understand sessions: Refer to the Auction Process. The length of time to measure the opening range is generally 20 to 30 minutes.
It is very important when trading the opening range that you take into consideration that J pairs are better measured in the open of Tokyo and EU pairs are better measured in the London open session . In the below chart you can identify the initial opening balance on UJ and intial balance are within the purple channels. Again the market will use these levels as key for indentyfying auction values.
6 Market Days
The initial balance can be used to your advantage to identify value in session and is indicative of the type of trading day that is ahead and is a reliable leading indicator of future price action. One clue nitial balance gives us is the type of market day ahead and the below charts are descriptive of the 6 types of Market day.
Identifying Value incorporating Floor Pivots
Floor Pivots have been around for a long time and many traders have used these pivots to master the market for decades. Larry Williams re-popularized the formula by including it in his book, How I Made One Million Dollars Last Year Trading Commodities, in 1979. He described the "Pivot Price Formula" that he used to arrive at the next day's value areas.
The chart includes inital balance, overnight range and floor pivots and is a simple view of auction prices from each session to the next. As Overnight trade is close of New York to the open of Tokyo you can consider that has closed Auction Prices. That's the part when Traders are desperate to close loosing positions and winners are holding winners for carry trade over into Tokyo. Now when you look at the below chart I hope that you can make sense of it all as what you are seeing is value areas to place a trade. And the further away from those values plotted the lesser value you can bid. You may also notice there is a relationship between yesterdays Values and today's. The open of the Daily Pivot Higher or lower is indicative of the days Bias
Rolling Values, are a prior days Value Area to be carried to current day and are a leading indicator of the current days future price action. The 2 below charts detail just how powerful rolling values are for technical analysis forecasting.
The final chart is a overview of market perspective once you become tuned to using the right tools to identify value. The Chart includes Market profile which aim is to identfy the Value area.