Talking about Value - The auction process - Part I

Now we continue talking about the idea of value. We already know the building blocks: PRICE, TIME and VOLUME and different players explained in the previous article: Talking about Value - The Players. Let´s starting putting things together using the Market Profile and Auction Market Theory.

Just keep in mind that this should be just a good introduction to the subject and not the complete theory. You should dive into this topic using the following books:
  • J. Peter Steidlmayer - Steidlmayer on Markets:Trading with Market Profile
  • James F. Dalton - Mind over Markets Power Trading With Market Generated Information
  • James F. Dalton - Markets in Profile
If you decide to read just one, stick to "Mind over Markets", cause it is the best one of them. This was my bible for to study the subject. I read it twice and really study it´s concept simple because it made sense. Enough propaganda, let´s start the content!!!

The stock market is organized as an auction market, meaning the buyers will enter competitive bids and sellers will enter competitive offers at the same time. The price a stock is traded represents the highest price that a buyer is willing to pay and the lowest price that a seller is willing to sell at. Matching bids and offers are then paired together and the orders are executed.



The best way to understand how value is formed is using a simple auction example. This time we will auction a painting, instead of our usual Ipad. By using the paint example I make it harder to determine it´s value. Since the artist is fictitious you will have no reference to start with.




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Trade Review - DHR - April, 19


Stock Selection Information

Stock had it´s earning released yesterday.



Watch List Reason - ybefore (earnings yesterday before the market opened - 2nd day)
Pre-Market Volume - N/A
Trading Plan - Long > 58.50

Management

Entry Setup used: Support trade


Trading Comments

The offers could not hold below 58.50 and it could not trade much below this level. Latter my tape reading skills help to identify the 58.54 as a support level were a buyer held the bid. Below that level was my stop.
CCI divergence aid to confirm a potential support and the entry and also a place to take some profits.

Evaluation

The trade was perfectly executed. My best trade of the day. I also manage to add to the position at the right timing. Since the market was in a more sideways day, I took the profits close to the 58.75 level. If the market was moving (either way) I´d probably have held the position a little longer.
My failure: when it got back to that level again the offers were quickly taken and there was another entry possible with the same strategy, but I did not take it. 
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Daily PM Prep - April, 19

** Preparation for Closing Session **

MARKET CONDITIONS



SPY - Not much has changed from the morning analisys. Same levels and reference point (so does the bias) As expected we are trading in the bottom part of the bigger range. The POC at 155.50 was a resistance to the up move. Market is sideways today and I do not expect it to do anything else. Taking profits at the targets is a wise choice in this type of market.
Bias: Neutral
Accuracy: 

PM Stock Selection Sheet download - I am limiting myself to trade only 20 stocks, but I put the complete list.
Updated at 13:45

Want more information about the Stock Selection Sheet?
Legends - Click me
Read this before using the information provided in this page:
1.Educational purpose material only. Use this information at your own risk. 2.Stocks may be added to the selection sheet at any time. They are used as a guide to select which stocks I will trade and set alerts . It does not mean that I follow all of them, that would be crazy.3.The Accuracy information is for my own use only. It is reviewed after I am done trading. This is just a way for me to measure how is my reading of the market and my confidence in it. I suggest you develop your own way to do this.4.The afternoon sheet will be updated between 13:00 and 14:00
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Daily AM Prep - April, 19


** Preparation for Morning Session**

MARKET CONDITIONS

World Markets News: Asian markets finished broadly higher today with shares in Hong Kong leading the region. European markets are broadly higher today. No important economic number to be released today.

Economic Calendar



SPY - Prices are trading between the bottom of the range - 153.75 - and the POC - 155.50. The POC may become a strong resistance to prices as the down trend get close. The confluence of the two zones is our main reference to turn from bearish to bullish on a longer time frame. Since today is Friday and there are no important economic number to be release the more likely scenario it for the market to stay inside the bottom part of the range. If prices go below 153.50 and start to hold there, we change our bias to bearish.
Bias: Neutral
Accuracy: 85% Market is sideways today. Took profits at the targets. Will probably stay that way all day today.

AM Stock Selection Sheet download
Updated at 8:20

Want more information about the Stock Selection Sheet?
Legends - Click me
Read this before using the information provided in this page:
1.Educational purpose material only. Use this information at your own risk.2.Stocks may be added to the selection sheet at any time. They are used as a guide to select which stocks I will trade and set alerts . It does not mean that I follow all of them, that would be crazy.3.The Accuracy information is for my own use only. It is reviewed after I am done trading. This is just a way for me to measure how is my reading of the market and my confidence in it. I suggest you develop your own way to do this.4.The morning sheet will be updated between 8:00 and 9:00
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