Lesson 1: Introduction to AMT | (How To Trade Orderflow)

Introduction to Auction Market Theory (AMT)

Understanding AMT as a Framework

• AMT is not a trading strategy but a theoretical framework for understanding order flow in trading.

• It can be represented through two main visual tools: PO graphs and volume profile graphs.

The Bell Curve Representation

• The bell curve illustrates the concept of balance in price transactions, with 70% of activity occurring within this range, termed fair value or balance.

• When prices move outside this range, it indicates an imbalance, suggesting that the market will seek to return to balance.

Price Movement Dynamics

• Prices oscillate between balance (fair value) and imbalance (inefficiency), indicating market behavior patterns.

• A price dip out of balance may serve as support for future upward movement towards previous or new balances.

Key Components of Volume Profile

Identifying Extremes in Balance

• The volume profile consists of three key areas: Value Area High (VAH), Point of Control (POC), and Value Area Low (VAL). POC represents where most trading has occurred.

• VAH marks the upper boundary while VAL marks the lower boundary of the established balance zone. These extremes are critical for identifying potential support and resistance levels.

Scenarios in Imbalance

• When prices are in an imbalance, they have two potential paths: returning to previous balance or establishing a new one through consolidation. An 80% chance exists for prices to revert back to prior balances after dipping out.

• A sharp reversal pattern often occurs when prices wick down from an imbalance back up towards VAH, demonstrating typical market behavior during these transitions.

Practical Application of AMT

Stages of Price Behavior

• In balanced conditions, price remains stable until its extremes are violated; these extremes act as dynamic support/resistance levels throughout trading sessions.

• Upon exiting a balanced state, prices may retest previous levels before moving lower or higher based on established support/resistance dynamics identified through tools like DOM and footprint charts used for entry triggers in trades.