Daytrading  |  NOV 2002

Developing A Model With Auction Market Theory by Donald L. Jones

Developing A Model With Auction Market Theory by Donald L. Jones Here’s an intraday trading model that uses auction market theory. A tenet of auction market theory is the unpredictability of the markets. An auction market model is built from market knowledge without predicting the market’s path. The auction market model requires input from both the market and the trader. It is dynamic, attuned to the market, theoretically sound, and universal. It is also unique to the trader who is exercising it. I will show you the logical steps for developing a trading model, using the auction market theory presented in STOCKS & COMMODITIES earlier this year. DEVELOPING A TRADING MODEL An auction market model is the result of a three-step strategy development. The steps are market strategy, trader strategy, and a synthesis of the two, working strategy. Market strategy is determined by the characteristics that define the market. Markets go through a cycle: balance (congestion) to trend (start of distribution), trend (distribution) and back to balance (start of congestion). Market strategy is concerned first with locating the market condition, or the phase of the cycle. The market may have a short time frame with a lot of action packed into minutes or even seconds, like the indexes, or it can be a longer time frame and a more sedate market, like the grains.

by Donald L. Jones