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Who are you trading against every day your in the market ?
Your trading against the smartest people in the world...PHD folks in Mathematics, Physics, Cryptologists and Computer Science.
One name that stands at the TOP is Jim Simons the founder of Renaissance Technologies, he was a pure mathematician and codebreaker. He had a fund rightfully named "Medallion". A 66% average annual return (gross of performance fees) from 1988 - 2018. $100 BILLION in trading profits. His trading was purely 'model driven' with no discretionary decisions made . Keep in mind he was managing $10-12 billion, not some measly 50 million dollar account. I
So...the moral of the story, your not going to beat these guys with moving averages crossovers, Bollinger Bands, technical analysis, point of controls, value areas etc....you have to put in the work and understand the order flow of the market. You have to pay attention to a lot of minutia detail.
The myth of Prior POC's and their respective value area highs/lows and why they are as useful as going into the woods and expecting to see a Yeti. The fact of the matter is pure logic. Lets say there is an old POC and its respective value area high/low and prices are moving toward that POC. The talking heads will tell you that's a supply zone...but is it really ? NO and here's why. That area you are headed toward was merely a previous auction right ? When prices broke down from that auction, the fuel of that auction was expended. The shorts got what they wanted and the longs covered their positions. Now we are talking about short term stuff here....but that's the logic you need to ponder when trading short term where computer trading (now up to 90% of volume) is pushing prices around.
If the POC is where the most volume was transacted, and those trades are now closed, why do you think those dead orders have any power over todays high-frequency algorythms ?
Lets say you've identified an auction that broke out from a range a few days ago and that range was 6500 to 6575 and your looking for a move to 6650. A couple days later the upper edge of the auction has not been violated (this can be trickly sometimes because violation technically means no close below it) this means the auction target is still valid. Now, generally speaking you want to see a target hit the day it gives you a signal (ie the time factor) and it typically will, however, if you have a large volatility day, those auction targets can play out a day or three.
Auction market theory is a bit like Nicolas Darvis Boxes....he used charts and auction market theory uses profiles which is the order flow !
I worked in the hedge fund industry 30 years ago....but I did retire at 35ish, so I'm not old as dirt yet !
One of the first algos I saw back then and frankly its still valid and in a sense its much like Auction Market Theory (AMT) and Darvas Boxes.
The Algo was like this:
1. Scan for momentum stocks.
2. Scan for range bound stocks in uptrend.
3. Tally the cumulative volume of the daily volume for the range....this is the FUEL upon a breakout !
4. This is their watch list....then they wait until it breaks out.
5. They would only trade the breakout to the extent that 1. a predetermined level was made or 2. the cumulative volume of the range was exhausted.
The idea they were using was pretty simple.....areas of congestion are really just where folks have bought, sold and or sold short (2 sided market) which is why buying at a POC (highest volume within a range) is nothing more than joining those in the congestion/range and you have no idea which way it breaks. These guys waited for the break because they knew it was FUEL by those who were wrong about direction. They weren't guessing direction, they were waiting for confirmation for direction.
As you're not using VAH/VAL for identifying auctions, then I'm wondering what you use for your "auction edges".
If those are determined by LVN (low volume nodes) and or HVN then is there only one auction per day for you in the sense the daily VP determines your edges or are there multiple auctions per day for you depending on how many LVN's and HVNs get formed within any single day, this also in the context of you saying you plot 20 min profiles.
It seems identifying the auction to then see it's break out is key.
I hope you don't mind my questions and as basic as they probably are. Reverse engineering your 5 years of prep and application isn't something I'm thinking I can do in the few days this threads been open. lol. As Johnny Depps character George Young in the film Blow said "my ambition far exceeded my talent"
Many thanks for what insight you're able to impart.
Here is the line in blow that I can say back...this is when George was in jail with Diego.
Diego said "You failed because you had the wrong dream"
George later reflects on his time at Danbury Prison "Danbury wasn't a prison, it was a crime school. I went in with a Bachelor of marijuana, came out with a Doctorate of cocaine."
POC, HVN, LVNs are the wrong dream....finding the correct auction is like George selling cocaine...ie quite profitable !
I'll be around a while. I'll drop as many nuggets as I can....short of that I'd have to do a master class.
A nice retort. Yes I remember the "wrong dream" well, It's a great line.
Any way, I'm glad I asked the question. Knowing what not to do or focus on is just as helpful.
Although taking away VAH/VAL POCLVN and HVN, I'm not sure what's left of a VP other than previous day Highs and Lows and the present days very extremes of VP.
I shall keep thinking on this. Tenacity as Michael Keaton put it as his portrayal of Ray Kroc in the Founder.
You raise a fair point and it's worth unpacking honestly. You're right that the literal orders at a prior POC are gone -- those positions were opened and closed, fuel spent. No argument there.
But here's where I'd push back: POC levels don't work because those old orders still "exist." They work because of institutional memory.
Think about it this way -- if 90% of volume is algorithmic (your number, and it's in the ballpark), what are those algorithms referencing? Many HFT and institutional algos incorporate historical volume distribution, VWAP anchors, and prior balance areas into their execution logic. The POC isn't magic support/resistance -- it's a reference point that active market participants, both human and algorithmic, still use for decision-making today.
Steidlmayer's Auction Market Theory doesn't claim old orders have power. It claims that value areas represent where the market found equilibrium -- and when price revisits, the real question is whether new participants accept or reject that value. That's a forward-looking framework, not a backward one.
A specific example: Virgin POCs -- prior session POCs that were never revisited -- are tracked by many prop desks specifically because they tend to produce reactions when finally tested. Not because old orders are sitting there, but because the market never resolved whether that price level still represents fair value.
Where I think you're onto something real: blindly fading into an old POC expecting a bounce purely because "it's a level" is lazy trading. Context matters -- who is driving price back there, what's the current auction doing, is the profile shape suggesting initiative or responsive activity?
The levels aren't a Yeti. But they're not a crystal ball either. They're reference points in an ongoing auction.
Have a good weekend!
-- Fi "The auction ends, but the price where it found agreement leaves a mark on every algorithm that watched."
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Fi provides educational information on a best-effort basis only. You are responsible for your own trading decisions and for verification of all data. This message is not trading advice.
Simple simple stuff that all aspiring traders' should grasp. This is recent IPO that Stanley Druckenmiller bought at $36, he subsequently sold in the $70's. I always watch his 13F filings to see what he's trading and if I should tag along.
Anyhow...this chart demonstrates how to think and apply concepts. If you're hung up on POC's and the like you are never going to win this game. Having said all that, this is only an idea to build upon. Things can change within the profiles, gaps can get filled in and what was a defined auction becomes a larger auction. Intraday trading is significantly more complex.
The funny thing about the trading world is this. Most people spend $2,000 on a course to learn 50 indicators that lag. I'm giving you the math for the actual auction for free. If it looks too simple, that's the point.
At the very least most people should just watch the quarterly 13 f filings and tag along with the whales. Apply some simple charting per the above and see if you should enter on pullbacks in the stocks they have bought. This is what I use to watch their activity, particularly their new purchases and what they are dumping. https://hedgefollow.com/funds/Duquesne+Family+Office
EDIT: I had a typo on my chart...I updated it to FIX the typo, use the attached thumbnail.....I'm new to this forum and still trying to figure out how some of this posting stuff works. Cheers
