Price is an auction
Auction Market Theory, in the form this course uses, has three plain ideas. Price advertises opportunity. Time regulates how long that opportunity is offered. Volume measures how much business was done. You do not need a formula yet. You need the habit of asking where trade actually occurred, not only where a wick printed.
Support and resistance
Support is a price area where selling failed often enough that buyers were willing to do business again. Resistance is the mirror: buying failed and sellers returned. A single touch is a mark on a chart. A level becomes useful when the auction rejected it more than once, or when a large amount of volume traded there and then price left. Draw the area, not a hairline, unless the venue really did print one exact price over and over.
Channels
A channel is two boundaries that contain a swing. The lower boundary is where responsive buyers have been stepping in. The upper boundary is where responsive sellers have been stepping in. The middle is not a signal. It is the space the auction is currently using. A channel drawn on one morning and never touched again is a guess. A channel that has held both sides is a description of the auction you are in.
A break-out has to be believed by volume
A reversal break-out is price leaving a boundary in the other direction after the auction failed to continue. The wick through the level is the advertisement. Volume is the business. If price pokes through resistance and volume does not expand, the auction did not accept the new prices. It probed them. Calling that a break-out is how traders buy the exact print that returns to the range.
- Boundary first. Name the channel or the shelf you claim price is leaving.
- Acceptance next. Did later trades occur beyond the boundary, or only a wick?
- Volume last. Did business increase, or did the print happen on air?
