3.9 KiB
Auction Market Theory & Volume Profile — Parts 4–5
The Auction Market Theory underpins all Wyckoff methodology. The market exists to facilitate trade between buyers and sellers. When price is within a range, buyers and sellers agree on value — this is equilibrium (market efficiency). When price trends, one side dominates — this is disequilibrium (market inefficiency).
A Wyckoff accumulation range is an equilibrium zone where professionals build positions. The breakout into markup represents disequilibrium. This maps directly to Auction Market Theory's balance/imbalance framework.
Volume Profile Components
- POC (Point of Control): Price level with the highest traded volume. Acts as a magnetic level — price is attracted to where the most contracts changed hands.
- VAH/VAL (Value Area High/Low): The upper and lower boundaries containing 70% of traded volume. The Value Area represents the equilibrium zone where both sides find price acceptable.
- HVN (High Volume Node): A price level with significantly above-average volume. Identified as an accumulation zone if price is above it, a distribution zone if price is below it.
- LVN (Low Volume Node): A price level with significantly below-average volume. Price moves quickly through these zones — excellent locations for quick entries as the breakout through an LVN has minimal resistance.
- VPOC Migration: In a healthy trend, the VPOC migrates in the trend direction across successive sessions. A VPOC that fails to migrate signals trend weakness — effort is not producing result.
- Naked VPOC: An old POC that has not been revisited. These are high-priority targets as the market seeks to fill these "unfinished business" levels.
Profile Types
- Session Profile: Based on a single trading session. Best for intraday traders.
- Composite Profile: Aggregates multiple sessions or a full structure. Best for swing/position traders identifying overall context.
- Fixed (Anchored) Profile: Anchored to a specific structure start/end. Best for Wyckoff structure traders — reveals volume nodes within the structure boundaries.
Completed profiles are more reliable than developing ones — a profile still forming can have its levels shift.
Volume Profile Operational Principles — Section 5.8
Five principles for trading with Volume Profile, each with a Wyckoff-methodology analogue:
| Principle | Description | Wyckoff Equivalent |
|---|---|---|
| Range | At value area extremes, favor reversals. Buy at VAL, sell at VAH. | Trade at range extremes — Spring near support, UTAD near resistance. |
| Reversion | After a shakeout absorbs one extreme, price visits the opposite extreme. 80% rule: once price re-enters the value area after a false break, probability favors visiting the far extreme. | After a Spring, price targets the upper range boundary (Phase D). After UTAD, targets the lower boundary. |
| Continuation | After a breakout from the value area, wait for the test of the broken extreme (VAH for bullish, VAL for bearish) to enter in the breakout direction. | LPS/BUEC entry after SOS breakout; LPSY/BUES entry after SOW breakdown. |
| Failed Reversion | If price breaks an extreme but fails to re-enter the value area, the breakout is authentic. Enter on the test of the broken boundary. | Genuine SOS/SOW breakout confirmed by price remaining outside the structure. |
| HVN Bias | The last High Volume Node determines the short-term directional bias. If price is above the last HVN → bullish bias (HVN = accumulation). If below → bearish bias (HVN = distribution). | Phase B tests above ST = accumulation bias. Tests below ST = distribution bias. |
These principles form a standalone trading framework for traders who do not explicitly use Wyckoff structures. For Wyckoff traders, they provide objective confirmation and additional entry precision.