Every market is an endless auction between buyers and sellers. This course explains the principle in plain words and walks you through all 17 auction states of the Flow.42 AuctionEngine: the 13 core states and the four rotation states. It shows why a state is not a direction signal, how the Tape Agreement protects you when structure and tape disagree, and how the AI Agent turns all of it into a readable analysis.

At a glance: 17 states: 13 core states + 4 rotation states · Structure vs. tape · Origins in the 1980s (Steidlmayer, CBOT) · 3 building blocks: Price · Time · Volume

1. What is an auction in trading?

Don't picture a chart. Picture a marketplace. A market is nothing more than a continuous auction in both directions: buyers and sellers negotiate until they agree on a fair price, and then the whole game starts over.

Everyday picture: Think of a flea market. The seller calls out $50, the buyer offers $20. They haggle until both are happy, say at $35. That is exactly what happens in the market, only thousands of times per second. Price rises to attract sellers and falls to attract buyers. Where both sides are happy to trade, "fair value" is found.

Why price moves at all

Price is an advertisement. It moves up or down to attract a counterparty. As long as both sides want to trade at the current price, the market stays calm. When new information arrives (a headline, a large buyer, panic), one side turns aggressive, and price has to travel until it finds a new equilibrium.

The three building blocks of every auction:

Balance and imbalance: the two states of every market

The core idea of "Auction Market Theory": every up auction is followed by a down auction and vice versa. The market forever swings between seeking balance and leaving balance. Read that rhythm, and you understand the context behind every candle.

Where does this come from? Auction Market Theory traces back to J. Peter Steidlmayer, who developed the "Market Profile" at the Chicago Board of Trade (CBOT) in the early 1980s. Jim Dalton popularized the ideas in his book Mind Over Markets. Flow.42 casts exactly this thinking into a deterministic classifier.

2. The building blocks the engine uses

To understand the states you need a handful of terms. They all come from Auction Market Theory. The AuctionEngine builds them bar by bar from volume at price.

Term Meaning
Profile The distribution of traded volume across all prices of a session. Plotted, it usually forms a bell shape: heavy trade in the middle, thin at the edges.
VPOC / POC Volume Point of Control. The price with the highest volume. The session's "magnet," where most participants agreed on value.
Value Area (VA) The range where roughly 70% of volume traded (one standard deviation). The session's "fair value" corridor.
VAH / VAL Value Area High and Value Area Low, the top and bottom edge of the value area. The most important reference lines of all.
HVN High Volume Node. A price zone with heavy trade, which means acceptance. Acts like support or resistance; price lingers here.
LVN Low Volume Node. A thin zone that price races through, which means rejection. Popular for breakout continuation.
Prior vs. Developing The engine always compares the completed prior session profile (prior: pVPOC, pVAH, pVAL) with the developing profile of the current day (developing: dVPOC and so on).
Acceptance Price stays outside the old value, confirmed by time (enough bars) and volume and a migrating VPOC. A genuine change of value.
Rejection Price probes past an edge but finds no takers and returns. The heart of the "failed auction."
POC migration If the VPOC drifts one way, fair value shifts there: trend. If it stays put: consolidation.
Location Where is price relative to prior value? (below or at VAL · inside value · near center · at or above VAH). The engine determines this separately from the state.
Confidence A score from 0 to 100 the engine attaches to each state. It says how clear the evidence is. It is not a buy or sell signal.

Important: the AuctionEngine produces no buy or sell signals. It only supplies context, the state of the auction, that the rest of the Flow.42 suite (and you) can use to frame your own decisions.

3. The 17 auction states

Bar by bar, the engine assigns the market to exactly one state. The 13 core states are always active. The four rotation states (14 to 17) are part of the state machine as well; since the September 2026 build Rotation States is on by default in the AuctionEngine properties (a chart or template saved with an older build keeps its own setting). The order of priority is fixed: opening first, then rotation (when enabled), then failed auctions, then acceptance and imbalance, then balance, and if nothing is clear, "transition." Each state below names the thesis the auction has built, what invalidates it and where it points; none of them is a forecast for the next bars, and the timing of an entry comes from the order-flow tools.

Color / thesis legend: 🟢 bullish, a long thesis · 🔴 bearish, a short thesis · 🟡 caution, no edge · ⚪ neutral, no thesis. The color names the direction of the thesis, not an expected move.

All 17 states at a glance. The Marker column shows the label the chart pins at a state change. Opening states and Transition set no marker.

No. State Bias Marker Group
1 Initializing ⚪ neutral A · Opening
2 Open Inside Prior Value ⚪ neutral A · Opening
3 Open Above Prior Value 🟢 bullish (test) A · Opening
4 Open Below Prior Value 🔴 bearish (test) A · Opening
5 Failed Upper Auction 🔴 bearish FAIL UP B · Failed auctions
6 Failed Lower Auction 🟢 bullish FAIL DOWN B · Failed auctions
7 Higher Value Acceptance 🟢 bullish HVA C · Value acceptance
8 Lower Value Acceptance 🔴 bearish LVA C · Value acceptance
9 Imbalance Up 🟢 bullish (trend) IMB UP D · Imbalance
10 Imbalance Down 🔴 bearish (trend) IMB DOWN D · Imbalance
11 Mid-Value / No Edge 🟡 caution MID E · Balance & no edge
12 Balance / Rotational ⚪ neutral BAL E · Balance & no edge
13 Transition / Unclear 🟡 caution F · Transition
14 Rejection of Lower Prices 🟢 bullish REJ LOW G · Rotation
15 Rejection of Higher Prices 🔴 bearish REJ HIGH G · Rotation
16 Return to Value (from below) 🟢 bullish RTV UP G · Rotation
17 Return to Value (from above) 🔴 bearish RTV DOWN G · Rotation

A · Opening states (States 1 to 4)

Right at the session's start (the first few bars) the engine asks only one thing: where does price open relative to prior value? That decides whether a rotation day (open inside value) or a directional day (open outside) is more likely. Acceptance is not confirmed yet.

1. Initializing ⚪ Neutral · Initializing The engine has no complete prior session profile yet. Without that reference it can classify nothing. It waits until enough history is loaded. Confidence 0 to 20 · Tip: Load more history / Tick Replay

2. Open Inside Prior Value ⚪ Neutral · Open Inside Prior Value Price opens inside yesterday's value area. The market starts where consensus last was. Typical of a rotation day, where price oscillates around fair value. AMT: an open inside value makes rotation around the VPOC more likely than a trend. Edges (VAH/VAL) are often tested and rejected. Confidence 60 · Invalidated by: acceptance outside value

3. Open Above Prior Value 🟢 Bullish (test) · Open Above Prior Value Opening above yesterday's VAH. Potentially strong, but still just a test, not confirmed strength. It has to show whether the higher price gets accepted. AMT: Directional day possible. The key is whether the market builds acceptance above pVAH or falls back. Confidence 55 · Invalidated by: back inside prior value

4. Open Below Prior Value 🔴 Bearish (test) · Open Below Prior Value Mirror of state 3: opening below yesterday's VAL. Potentially weak, but at first only a downside test. Treat it as a test, not as a confirmed downtrend. AMT: Downside directional day possible, provided acceptance below pVAL follows. Confidence 55 · Invalidated by: back inside prior value

B · Failed auctions (States 5 and 6)

In AMT, the failed auction is one of the most reliable setups: price breaks past a value edge, finds no takers, and tips back into value. The breakout traders are trapped, and their stops fuel the reversal. The engine only checks this when the edge was tested recently (a memory window).

5. Failed Upper Auction 🔴 Bearish · Failed Upper Auction The upper edge (pVAH) was tested, but price returned inside value without convincing upward VPOC migration. The upside breakout has failed. AMT: Classic failed breakout. Don't chase longs up here unless the upper edge is accepted again. First target: back to the VPOC. Target: pVPOC, then pVAL · Invalidated by: acceptance above pVAH again

6. Failed Lower Auction 🟢 Bullish · Failed Lower Auction Mirror: the lower edge (pVAL) was tested, but price returned inside value without convincing downward VPOC migration. The downside break has failed, which leans bullish. AMT: Don't chase shorts down here unless the lower edge is accepted again. First target: back to the VPOC. Target: pVPOC, then pVAH · Invalidated by: acceptance below pVAL again

C · Value acceptance (States 7 and 8)

The opposite of a failed auction. Here the market accepts a new value outside the old value area. The engine demands three proofs at once: enough time (bars) outside, enough volume outside, and a genuine VPOC migration in that direction.

7. Higher Value Acceptance 🟢 Bullish · Higher Value Acceptance Price, time and a migrating developing VPOC support a higher fair value. The market has built value up top and accepted it. AMT: Context for pullback continuation. The old VAH can become new support. Not a blind long signal, but a bullish context. Target: prior high / next HVN · Invalidated by: back inside prior value

8. Lower Value Acceptance 🔴 Bearish · Lower Value Acceptance Mirror: price, time and volume support a lower fair value. The developing VPOC migrates down. The market accepts lower prices. AMT: Context for downside pullback continuation. The old VAL can become new resistance. Target: prior low / next HVN · Invalidated by: back inside prior value

D · Imbalance (trend) (States 9 and 10)

The strongest form of acceptance. On top of value acceptance comes a range extension (price stretches the session range clearly beyond the prior extreme) and a strong VPOC migration. This is a live trend, not a mere test.

9. Imbalance Up 🟢 Bullish (trend) · Imbalance Up Price accepted above prior value, plus upside range extension, plus a VPOC that has clearly migrated up. A clear uptrend context. AMT: Continuation context. Fades need a clear rejection to work. Target: next upper HVN/LVN or liquidity reference. Highest confidence class · Invalidated by: accepted return into value

10. Imbalance Down 🔴 Bearish (trend) · Imbalance Down Mirror: price accepted below prior value, plus downside range extension, plus a VPOC that has clearly migrated down. A clear downtrend context. AMT: Downside continuation context. Target: next lower HVN/LVN or liquidity reference. Highest confidence class · Invalidated by: accepted return into value

E · Balance & no edge (States 11 and 12)

When no breakout is accepted and there is no failed auction, the market sits in balance. Here responsive behavior (buy or sell the edges) is more likely than trend continuation.

11. Mid-Value / No Edge 🟡 Caution · Mid-Value / No Edge Price hugs the VPOC / center of value. Trade location is poor: equally far up and down, no asymmetric edge. AMT: "Protect mode." Don't force trades in the middle. Wait for price to reach an edge, where reward and risk turn asymmetric again. Confidence 78 · Invalidated by: a clean move to a value edge

12. Balance / Rotational ⚪ Neutral · Balance / Rotational The developing value overlaps heavily with prior value and the VPOC barely migrates. A balanced market, rotating sideways. AMT: Rotation between the value edges and the VPOC. Responsive trading (edges) beats initiative chasing of breakouts that mostly fail. Target: rotate VAL ↔ VPOC ↔ VAH · Invalidated by: accepted break outside value

F · Transition (State 13)

The fallback state when the evidence is mixed.

13. Transition / Unclear 🟡 Caution · Transition / Unclear The auction evidence is contradictory: no confirmed balance, no acceptance, no failed auction. The market is in transition between two states. AMT: Context is transitional, so reduce assumptions. Wait for clear acceptance or rejection before committing. Confidence 45 · Tip: Wait, don't anticipate

How the engine decides: the states are checked in a fixed order. Opening phase first, then failed auction, then acceptance and imbalance, then mid value, then balance, and last of all "transition." With rotation states on, the rotation check comes right after the opening phase. Each state carries a confidence (0 to 100), a location, an invalidation point and a target. Everything is computed deterministically from time, volume and VPOC migration: traceable and free of randomness.

G · The rotation states (States 14 to 17)

Switched on with Rotation States in the AuctionEngine properties. In the current build the switch is off until you turn it on.

The 13 core states describe balance, breakout, acceptance and failure around the value edges. What they leave implicit is the most common counter move of all: the rotation back to prior value. In AMT terms this is the classic "look below and fail", and the old floor trader 80% rule: once price is accepted back inside the value area after trading outside it, it tends to rotate all the way to the opposite side of value. In the core states this move exists only as the imbalance states' invalidation footnote ("return and acceptance back inside prior value"). The rotation states turn it into a state of its own, with direction, target and invalidation:

14. Rejection of Lower Prices 🟢 Bullish · Rejection of Lower Prices The session traded below the prior day's low and found no sellers there. Price is accepted back above the old low: the down auction has failed at the range extreme, and a rotation toward prior value is underway. AMT: "Look below and fail" at the range edge. Continuation shorts need a fresh rejection; the magnets above are prior VAL, then the VPOC. Target: pVAL, then pVPOC · Invalidated by: acceptance back below the prior low

15. Rejection of Higher Prices 🔴 Bearish · Rejection of Higher Prices Mirror: the session traded above the prior day's high and found no buyers. Acceptance back below the old high: rotation toward prior value from above. AMT: "Look above and fail." Continuation longs need a fresh rejection. Target: pVAH, then pVPOC · Invalidated by: acceptance back above the prior high

16. Return to Value (from below) 🟢 Bullish · Return to Value (from below) Price is being accepted back inside the prior value area after trading below it. The rotation now has the structural proof and, per the 80% rule, a defined destination: the opposite side of value. AMT: The invalidation of the down imbalance is itself a tradeable structure. Old context flips: shorts need acceptance back below value. Target: pVAH (the far side of prior value) · Invalidated by: acceptance back below pVAL

17. Return to Value (from above) 🔴 Bearish · Return to Value (from above) Mirror: acceptance back inside prior value after trading above it. The rotation targets the lower side of value. AMT: The invalidation of the up imbalance is itself a tradeable structure. Longs need acceptance back above value. Target: pVAL · Invalidated by: acceptance back above pVAH

Why a switch? Turning rotation states on changes what the chart tells you on rotation days: the engine hands over from the imbalance read to the rotation read hours earlier, and with it the context every Flow.42 Suite indicator receives. Existing charts keep their familiar behavior until you enable it consciously.

4. Structure vs. tape: why a state is not a signal

The most expensive misunderstanding in auction reading: a state is a statement about structure, not a promise of direction. "Imbalance Down · 95/100" says the market has accepted value lower. The definition of a down imbalance is fully met. It does not say the next hours will pay a short.

The two can diverge, for hours. A market can be structurally imbalanced down all afternoon, trading below prior value with developing value below, while the live tape (the actual buying and selling happening now) rallies against it the whole way: rising delta, a developing VPOC drifting upward, fresh session highs. The structure read stays correct the entire time. The direction trade loses the entire time. And the confidence number cannot warn you, because confidence measures how well the definition fits, not how likely the direction is to pay right now.

This is why the engine shows two scores side by side:

When a conflict is confirmed, that is, the tape has been running against the state for several bars, the engine escalates visibly: the panel turns gold, the State line carries the tape's direction as a suffix (Imbalance Down · TAPE UP), a gold conflict marker is pinned on the chart, and the usual continuation hint becomes a guard: "Tape is running against the auction state. No continuation shorts. Wait for realignment or a clear rejection at value."

The lesson in three sentences. Structure tells you what the market has built. The tape tells you whether the current flow is running with that thesis. A state with an aligned tape is context, not an entry: the trigger still comes from the order flow, and the state's invalidation tells you when the context is gone.

Note what the conflict is not: it is not a signal in the other direction. A tape running against a down state does not make the day a long. It makes continuation shorts unsupported until the tape realigns or price shows a clear rejection at value. The protection is the point, not a new prediction. With rotation states on, the same day often reads differently: the engine hands over to a rotation state, the tape agrees with that direction, and the conflict goes away because the state now matches what the tape does.

5. The Auction Analyst: the AI explains the state

The engine tells you which state the market is in. The Auction Analyst is an optional AI agent that, on demand, explains what that means in context. In plain language, in your language.

How it works: the division of labor between human, machine and AI

  1. Engine. The deterministic classifier computes state, confidence, location, VPOC/VA and the Tape Agreement. Numbers, not opinion.
  2. Snapshot. On a button click, a structured state snapshot (including the current tape read) is sent to the Flow.42 backend.
  3. AI Agent. The model explains the snapshot as a readable analysis. It does not classify again. During a confirmed tape conflict, the analysis leads with the divergence and treats continuation in the state's direction as unsupported, exactly like the panel's guard.

The result appears in its own copyable window (in classic terminal green or in white). The AI is deliberately the explainer, not the one deciding: the hard classification stays rule based and reproducible.

The design principles

In your language

The backend applies the same stable analysis rules across all locales. You only pick the output language: English · Deutsch · Español · Português (BR) · Italiano · Français · 简体中文.

In short: the AuctionEngine is the precise, rule based eye that reads the auction state. The Auction Analyst is the voice that, on request, translates that state into an understandable story: safe, multilingual, and without ever putting the chart at risk.

Disclaimer: This course is for educational purposes only and is not investment or financial advice. The AuctionEngine produces no buy or sell signals. Trading futures and derivatives carries substantial risk of loss.

Sources on Auction Market Theory

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