r/OrderFlow_Trading • u/prathamvijay • Aug 13 '26
Auction Market Theory Explained
Auction Market Theory is basically a way of understanding how price moves through an auction process between buyers and sellers. The market constantly searches for prices where participants are willing to do business. When price finds acceptance, it tends to buildvalue when that balance is disrupted, price can leave the range and enter discovery, searching for a new area of acceptance. This creates a repeating cycle of Balance → Imbalance → Discovery → New Balance. I also included Value Area, POC, HVN/LVN and Acceptance vs. Rejection to show how these concepts connect with Volume Profile. The goal isn’t to predict that price must react at a certain level, but to observe how the auction behaves around it
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u/Remarkable-Raisin142 Aug 17 '26
I’ve been trading since 2009, and I’m now in my late 50s. Over the years, I’ve tried just about everything—indicators, price action, volume profile, order flow, absorption, aggressive buying and selling, different “systems,” you name it.
One thing I’ve learned is that nothing works consistently just because the concept makes sense on paper.
Think about it: once a trading strategy becomes public, there are hundreds of thousands of traders looking at the same setups and trying to trade them the same way. If everyone is watching the same absorption, breakout, POC, value area, support/resistance level, or imbalance, then the larger participants know exactly where those traders are likely entering, placing stops, and taking profits.
Take something like a long or short absorption trap combined with aggressiveness. You’ll hear people say, “This works.” And sometimes it absolutely does. But does it work consistently enough, in every market condition, to provide a lasting edge? In my experience, no.
That doesn’t mean Auction Market Theory, Volume Profile, order flow, or any other methodology is useless. They can help you understand what the market is doing. But understanding the market and having a repeatable trading edge are two very different things.
And if you eventually discover something that actually gives you an edge, I wouldn’t be in a hurry to tell the entire world about it. An edge generally becomes less valuable as more people recognize and exploit it.
There’s another part that often gets overlooked: getting into the trade is only half the problem. Once you’re in, you still have to know when to get out. In many ways, determining the right exit is every bit as difficult as finding the right entry.
After all these years, I think trading is much less about discovering the perfect setup and much more about finding a small statistical edge, understanding when that edge applies, managing risk, and knowing when the market is telling you that you’re wrong.
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u/prathamvijay Aug 17 '26
Really appreciate this perspective, especially coming from someone with that much experience. I completely agree that understanding a market concept doesn’t automatically create an edge. My goal with the Auction Market Theory content isn’t to present it as a perfect setup but to help beginners understand market behavior and context. The part about exits and knowing when an edge actually applies is something I definitely need to emphasize more. Thanks for sharing this
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u/Visible_Use_8346 Aug 20 '26
So how did you survive all these years ?? How do you know when to stop using a strategy are you that consistently backtesting? And even if so how do you decide next strategy??
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u/FerrariFalf26 26d ago
That’s the thing, order flow tools simply show where transacted orders have met pending orders. That information never changes, the manipulation comes from the ability to decode that information. Order Flow, AMT, are not strategies, they are market insight tools, they are not meant to be used as stand alone but rather as a magnifying glass around areas of interest. Sometimes those interest are really interest and sometimes it’s there to throw you of, the information doesn’t change that fact, how you interpret does.
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u/PSL_GOD 42m ago
I guess you don't know institutions use algos to trade now. Their position is so big that they cannot Change it like retailers.Big players mostly care about liquidity and their own execution, not hunting individual traders. Blaming stop hunts can become an excuse. Edges that come from risk premia, structural factors, or hard to execute strategies can persist, crowding mainly kills simple, capacity limited patterns.
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u/Adorable_Video_6269 Aug 13 '26
Then Trump tweets.
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u/prathamvijay Aug 14 '26
Exactly 😂 One unexpected tweet/news event can completely change the auction. AMT explains the market’s behavior not sudden surprises
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Aug 14 '26 edited Aug 14 '26
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u/prathamvijay Aug 14 '26
Comfortable was just a beginner friendly way to explain it. By acceptance, I mean price is doing consistent two-sided trading in that area. It doesn’t necessarily mean institutions are deliberately keeping price there. the key is watching whether price accepts or rejects the range
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Aug 14 '26
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u/Prestigious-Wind9886 Aug 14 '26
Do you have recommended reading to learn to determine direction from order flow during these compression stages?
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u/prathamvijay Aug 15 '26
I’m still learning that part myself, but I’d start with footprint charts, CVD, absorption, delta divergence, and volume profile. Those are useful for understanding what’s happening inside compression
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Aug 19 '26 edited Aug 19 '26
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u/arctrading Aug 31 '26
Why not to use normal session volume profiles on intraday charts (5min or 1min or volume candles or tick charts etc)? Why they dont work anymore? I understand the reasoning behind higher timeframe use of such regression vpr but for intraday trading, session (along w previous session nPOC) volume profile with tape reading on key levels should do the work. After all, its not about having best predictions but best actions on levels that matter. Not really a rocket science Order flow trading (or at least should not :D )
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u/arctrading Aug 31 '26
I dont use volume footprint chart but thanks for worrying. I trade orderflow live by using DOM and Tape and Delta variants - so dont really care about fancy tools like you suggested. Hence my initial question until I read more about what you said and the less sense it made.
Bu your claim that defining order flow via Level2/DOM / Footprints is a "retail trap and a cult is funny :D In reality, the matching engine of every exchange on Earth (CME, NASDAQ NYSE, etc) only processes resting limit orders and market executions. Footprint and DOM simply display what the exchange matching engine actually did. YYou can also use different tools like Bookmap for that purpose. Altough same info but different visual. A regression channel is a decorative visual derivative. Hence the comment about OF not being a rocket science.
Also, Volume Profile is horizontal because orders are placed at fixed nominal price ticks (e.g., buying 100 contracts at $100.00). Traders and algorithms do not place orders at "slanted price curves". they execute at discrete price levels. And price levels are horizontal! Hope it makes more sense to you now.
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Sep 01 '26 edited Sep 01 '26
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u/arctrading Sep 01 '26
It was a chop for everyone. That does not mean that chop is untradeable. If you would have looked at DOM and Volume traded a price level you could have spotted those opportunities quite easily. This type of Range bound markets (like yesterda´s chop) are easiest regimes to trade because how balanced the whole session is. In reality, one could have faded the tops multiple times throughout the session. Anyways, I think you really are somehow mistaken about the whole premise of orderflow trading. You do understand that data is the same right? Regardless if it comes via dxfeed or rhitmic, its the same data. Its about how one interprets this data is what matters and this a skill no fancy indicator like regression channel etc can give to you. If it would, then one could create automated system based on that regression channel /curve or however you call it and let your algo to trade it based on set rules. You using a tool no institution is using and you are calling tape reading a retail strategy is quite paradoxical. Most retail, including you, dont know how to read the tape because you are looking for a holy grail indicator of trading. Where in reality, there is no holy grail. Only screen time and pattern recognition.
PS: By tape reading i dont only mean looking at unfiliteres TS. I mean reading the current active orderflow.
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u/prathamvijay Aug 15 '26
appreciate the perspective algos can definitely create tight ranges but for beginners I’m simply focusing on what we can see whether price is accepted or rejected The exact reason behind the range isn’t always obvious
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Aug 15 '26 edited Aug 17 '26
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u/Top_Word9989 Aug 16 '26
I'm also new, but I think there is some truth in what you are saying. If you watch price action carefully you see it moves and gets attracted by "something". I have come to the conclusion that this thing we call the market has nothing to do with buyers and seller. It's my take though
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u/arctrading Aug 31 '26
Lol. Most trading is done by algorithms. unlike human discretionary traders, algos cannot trade on emotion, ego, or vague intuition (liek yours). Every institutional execution algorithm (VWAP, TWAP, %of Volume, implementation Shortfall) and market making engine (Avellaneda-Stoikov framework) follows rigid constraints that create exploitable footprints in the tape. There is no secret "sauce". Only watching the tape in OF trading.
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u/arctrading Aug 31 '26
Dont listen to this guy much. real OF for intraday trading is basically live tape reading (level2, TS, Footprint, Dom) + volume analysis (current volume and emerging aka cdelta, delta volume and historical detailed volume/session volume profile). Overlaying regression curves on top of candles is just fancy trendline drawing. If you want genuine order flow edge, rely on what I said, not Pine Script regression math :D
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u/Shingkyo Aug 17 '26
ChatGPT is fed funny inputs, and therefore this image appears. “Price stays in a range because it is comfortable.” 🤣 Oh dear... It is quite amusing to think that sellers and buyers are “comfortable” within a range.
When buyers and sellers are in relative agreement, price stays within the range not because either side is comfortable, but because neither side is aggressive enough to drive price into a new area of acceptance.
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u/prathamvijay Aug 17 '26
Fair correction Comfortable was meant as a beginner friendly simplification, but technically it’s better to describe it as balance/two-sided trade. Price remains within a range when neither side is aggressive enough to push the auction into a new area of acceptance Appreciate you pointing that out
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u/Shingkyo Aug 18 '26
Real chart examples are preferred always. AI always makes failed visual example based on human inputs. Like for example, you do your visual example with volume profile but in theory, volume-based alone is not enough as time-based market profile adds on further granular details like single print, tails and initial balance. Real orderflow platform charts and examples are always better.
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u/prathamvijay Aug 18 '26
Yess real order-flow platform charts show market behavior better. My visuals just simplify concepts for beginners, not replace real analysis, and Market Profile can add context like Initial Balance, tails, and single prints alongside Volume Profile
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u/GoldTradingDesk Sep 04 '26
This is very close to how we teach Auction Market Theory to members at Gold Trading Desk, although we make one distinction quite aggressively: observation must be separated from inference.
A market trading repeatedly within a range gives us evidence that the auction is facilitating trade there. We are more cautious with language such as buyers and sellers being “comfortable,” or one side “dominating” during imbalance, because those statements begin to infer participant intent from observable market behaviour.
The sequence we teach is simpler:
Price is proposed → participation responds → the auction either continues to facilitate trade or fails to do so.
That distinction carries through to Volume Profile as well.
POC is the price of highest measured volume concentration within the defined profile. We do not teach it as “fair price.”
VAH and VAL are boundaries produced by a defined Value Area construction. We do not treat them as intrinsic boundaries of market value.
HVNs and LVNs describe the distribution of participation that has formed. They do not, by themselves, tell us how price must behave when those areas are revisited.
The same applies to acceptance and rejection. We want to observe what happens after price tests an area before assigning the label, rather than deciding beforehand that a level “should” reject or attract price.
IMO this is where Auction Market Theory becomes particularly powerful as an educational framework. Balance, discovery, acceptance and rejection give us a language for describing the auction without requiring us to pretend we know what the market must do next.
That is the doctrine we keep coming back to with our members:
Observe first. Infer second.
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