I was re-reading some of my earlier posts and wanted to explore one concept presented in context of some recent/current auctions. For now, let's just look at the gaps and ‘value migration’.
The market is a series of 2-way auctions where value migrates one way for a period of time and then auctions the other way. So ‘value migration’ and auctions are essentially one in the same.
You are gauging the intraday order-flow within the context of the order-flow occuring at a higher level. The gaps (and tails) signal 'excess' has occured and 'excess' is what marks the end of one auction and the beginning of another.
Of crucial importance is where the gap occurs. In this chart, I have tried to represent order-flow in terms of action relative to a higher timeframe value migration. Value migrates one way during one auction and then migrates the opposite direction. But value beginning to migrate up during a large value migration down is different than value migrating up after a good auction reversal. Separating these two similar situations is of crucial importance.
This indicator is based on what is happening with current order flow in context of a moving average, which will be a proxy for higher timeframe value migration.
'Current Value' is being defined as the average of intraday
VWAP and the close of each 30-min bar. This will smooth out the calculation of ‘current value’.
The moving average is a 40-period simple moving average of just the closes of the 30-min bars and therefore is representative of the last few days average value.
Note how an auction changes directions, accelerates, then deccelerates and the moving average 'catches up' to current day 'value'. This signals that the auction is aging --- but not necessarily over. A gap or a tail will usually occur to signal the end of one auction and the beginning of another.
note: the current auction trend is still up. why? because Fridays 'value placement' is still well above recent days of value (as seen in the moving average). the market did not elongate to the upside on Friday but the overall structure is still generally constructive. a move lower on monday could be thought of as potential opportunity to buy in a constructive larger auction at a price below recent value.