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Lessons › Module 1: Auction Market Theory › Lesson 1.1

Lesson 1.1 · about 5 minutes

The Market Is a Two-Way Auction

ObjectiveAfter this lesson you can explain why price moves up and down as a two-way auction searching for trade.

Concept

A market exists to help buyers and sellers trade. It works like an auction that runs in both directions. When buyers are more eager, price auctions up, looking for sellers willing to trade at higher prices. It keeps rising until buying dries up. Then price auctions down, looking for buyers at lower prices, until selling dries up. This back-and-forth never stops. A TPO (Market Profile) chart records the auction. Each letter marks a price where trading happened during one 30-minute period, so you can see where the auction went and where it turned around.

Eight columns of letters A to H rising from 99-101 up to a high of 106 in period D, then falling back to 99 in periods G and H. A A A B B B B C C C C D D D E E E F F F F G G G G H H H 106 105 104 103 102 101 100 99 D: auction up ends (buying dries up) G-H: auction down ends (buyers return) time → (one column per 30-min period) XYZ (hypothetical): the auction, one column per 30-min period Hypothetical data. Range 99-106
XYZ (hypothetical): the auction, one column per 30-min period. Hypothetical, synthetic data generated from code. Eight columns of letters A to H rising from 99-101 up to a high of 106 in period D, then falling back to 99 in periods G and H.

Worked example

Hypothetical stock XYZ trades through eight 30-minute periods, lettered A to H. In A it trades 99–101. Buyers are eager, so price auctions up: B reaches 103, C reaches 105 and D reaches 106. At 106 buying dries up and no one will pay more, so only one letter (D) ever prints there. Price then auctions down: E trades 103–105, F 101–104 and G 99–102. At 99 selling dries up and buyers return. H trades 99–101. The session's range is 99 to 106. Price turned where one side stopped participating.

Key takeaway

Price auctions up until buyers stop, then down until sellers stop, always searching for two-sided trade.

Check yourself

Pick an answer to see instantly why it is right or wrong.

Question 1 of 3

In auction market theory, what is the main purpose of a market?

Question 2 of 3

In the XYZ example, why did price stop rising at 106?

Question 3 of 3

After buying dries up at the top, what does a two-way auction usually do next?

Not financial advice. Educational content only, not financial advice. All tickers and prices are hypothetical, synthetic data. Market Profile is an organizing tool, not a trading system or a prediction. Trading involves substantial risk of loss.