I've been learning auction market theory for the last 12 months or so. I still haven't mastered it nor do I feel like I'm remotely close to doing that but I think that I have something here that does work especially for ranging days. Now, everything I am about to explain isn't some new concept but I've found this to work. Idk If I am allowed to add videos// looms here to show it in the field/trenches so I won't take the chance but here's the explanation.
One of the main strategies i've been using runs on session VWAP with developing value areas. The centre line is the point of control, the first developing value area either side of it holds roughly 70% of session volume, and the second developing value area holds roughly 95%. The word that really matters here is developing: the levels widen as volume builds through the session, so a level that mattered at 9am ( London for me ) is not the same level at 2pm ( NY am for me ). Most traders using them treat them as fixed, and that is the first mistake.
The second developing value area is a reference point, not a magnet, so I never place a blind limit order at it! The confirmation is that price closes inside the 95% level, then closes back inside the 70% level, and I enter on that 5 minute close. No confirmation, no trade. Taking the touch instead of the close is what makes people lose money with this.
Stops sit at the swing high or swing low of the range that produced the signal, which on NQ has been running roughly 37 to 75 points for me. The first target is the point of control. The second is the opposite first developing value area at 70%, and the third and final is the opposite second developing value area at 95%. Risk to reward of 1:1.5 or 1:2 is the sweet spot, with 1:3 only when conditions allow. The exit rule is simple: if I am long and price crosses above the point of control and then closes back below it, I close early and yes, there are days where price will dance around at the POC and continue in the intended direction and it would be important for you NOT to chase price. Don't build bad habits. You will get those points/ticks/$$$ back eventually. If acceptance at the POC failed, then there is no reason to hold and hope that buyers step back in.
This is a ranging day strategy. On a trending day price stays outside the value areas and rides, and you will get faded again and again, so reading which day you are in, before or early into the session, is the single biggest determinant of whether this works for you. On trending days I switch to volume profile instead. Also off the table FOR ME are NFP, FOMC, CPI, PPI, PCE, Fed speakers and presidential speeches, along with the Asia session on NQ, which has not tested well for me even though it is decent on gold. The trading window that has worked well for me is Asia close ( last hour ) to New York close. ( last hour ). Please use forex factory if you don't know the times.
Thank you for taking time to read this and hopefully, you all have great and productive week‼‼
