Market Auction Theory (MAT): How Markets Auction for Value, With Real Profiles

Market auction theory, known among traders as auction market theory (AMT), describes a market as an auction that never closes. Price is the tool the auction uses to find trade: it rises to look for sellers, falls to look for buyers, and slows down where both agree. The area where most of the volume changes hands is read as value. Every concept of the theory follows from that idea, which is why it is used with volume at price rather than with indicators built on closes.

Where auction market theory comes from

The theory is tied to Market Profile, the chart that shows how much time or volume a market spent at each price. Its author, J. Peter Steidlmayer, joined the Chicago Board of Trade in 1963 and, according to his publisher Wiley, “served on the Board of Directors of the Board of Trade in 1981-1983. While a director, he was responsible for initiating Market Profile and the Liquidity Data Bank.” His book with Steven B. Hawkins, Steidlmayer on Markets: Trading with Market Profile, is in its second edition from 2003. The other standard text is Mind Over Markets by James F. Dalton, Eric T. Jones and Robert B. Dalton, whose updated edition was published by Wiley in 2013.

Do not confuse this trading theory with economic auction theory, the study of auction design and bidding behavior. The two share a word, not a subject.

The main ideas of market auction theory

• Two-way auction. Unlike an auction house, both sides bid: buyers lift offers, sellers hit bids, and price moves to whichever side is more urgent.
• Value. Price levels where the market spends the most time and trades the most volume are accepted as fair by both sides. TradingView defines the point of control (POC) as “the price level for the time period with the highest traded volume”.
• Value area. The range around the POC that holds a set share of the volume; TradingView notes that “typically, this percentage is set to 70%”. Its upper and lower edges are the value area high (VAH) and value area low (VAL).
• Balance and imbalance. When price rotates inside the value area, the market is in balance: both sides agree on value. When it leaves and holds outside, it is in imbalance, looking for a new value.
• Acceptance and rejection. A move outside value that attracts volume is accepted, and value migrates. A move that fails quickly, leaving little volume behind, is rejected, and price tends to return. TradingView calls such thin areas low volume nodes (LVN) and the heavy ones high volume nodes (HVN).

The chart under the introduction shows that October 27 profile, the session the example starts from. The profile tool itself is explained in volume profile.

The 80% rule, tested

The rule usually quoted with Market Profile says: if the market opens outside the previous session’s value area, then trades back inside it for two consecutive periods, it has an 80% chance of crossing the whole value area to the other side. The rule is associated with Mind Over Markets; we could not check the book’s exact wording, whether it requires consecutive periods, or whether it gives the 80% figure, and we found no primary source for that figure, so we tested it rather than repeat it.

We computed the volume profile of every complete UTC day of hourly Bitcoin, from August 18, 2017 to October 28, 2026, with the same settings as the example (24 rows, 70% value area), and checked the next day. The rule was adapted to a market that trades around the clock: the session is the UTC day, a period is one hour, and the profile is built on volume, not on time.

The method, so that anyone can redo it. The profile of each UTC day spreads every hourly bar’s volume evenly over its high to low range, across 24 equal rows from the day’s low to its high; the point of control is the row with the most volume, and the value area grows from it, one row at a time on the side with more volume, until it holds 70%. A setup is the first pair of consecutive hourly closes inside the previous value area, edges included, on a day that opened outside it; it succeeds if a later bar of the same UTC day touches the opposite edge. The baseline takes the same first pair on every day, whatever the open, and counts a success if a later bar touches the edge farther from the second close. The point of control counts as revisited when the day’s range covers the middle of its row; counting the whole row instead gives 71.0%.

On this data the 80% rule worked 44.1% of the time, below the baseline: returning inside the value area did not make a full crossing more likely. This does not test the rule as Market Profile traders apply it, on futures with a defined session and 30-minute periods, but it shows that the figure does not carry over automatically to another market. The previous day’s point of control was revisited on 68.6% of days; without a baseline, that mostly says that one day’s range often overlaps the next.

Order flow analysis: the auction trade by trade

Order flow analysis looks at the same auction at its smallest scale: the orders waiting in the book and the trades that hit them. It answers a narrower question than the profile: who is more aggressive right now, buyers or sellers?

• The order book. Limit orders waiting to buy (bids) and to sell (asks) at each price. It shows intentions, which can be canceled; see depth of market and Level 2 data.
• Aggressive trades. A market order that buys at the ask lifts the offer; one that sells at the bid hits it. The difference between the two volumes over a bar is called delta.
• Volume at price. Footprint charts split each bar’s volume by price and by side, a profile at the scale of one bar.
• Hidden size. Large orders can be split or hidden, as with iceberg orders, so the visible book is never the whole picture.

In auction terms, order flow shows the auction while it happens, and the profile shows its result. A move out of value on strong aggressive buying is read as initiative; a move that stalls with little volume is read as a probe likely to be rejected. Neither reading has a tested success rate that we know of.

How traders use auction market theory

• Locate value. Mark the previous session’s value area and point of control before the open.
• Read the open. An open inside value suggests balance and rotation between its edges; an open outside it asks whether the market will accept or reject the new prices.
• Trade the edges in balance. In a balanced market, the value area edges act as support and resistance.
• Follow acceptance. When price holds outside value and volume builds there, value is migrating, which is how a trend looks in auction terms.
• Size the risk. Stops beyond the edge of a value area or a low volume node give a defined risk; see position size.

The supply and demand approach draws similar zones from price alone. More ideas are in trading concepts.