A market profile failed auction happens when price breaks out of the Initial Balance (the first hour’s range), fails to hold beyond it for more than 30 minutes, and then travels to the opposite side of the range. The breakout extreme becomes a “failed auction zone” that the market tends to revisit within a few sessions, which gives traders a clear reference level to trade towards.
Welcome to the Market Profile Series. In the last tutorial, we saw Market Profile Spike and Spike rules, and in this tutorial we will be discussing What is Failed Auction and how to play it. Failed Auction is a Market Profile Pattern brought to the world by Ray Barros of Trading Success. Failed Auction provides traders a great opportunity to trade with a dynamic mindset and construct his/her trading rules accordingly
Key Takeaways
- The Initial Balance (IB) is the high-low range of the first 60 minutes of trading.
- A failed auction is an IB breakout that cannot hold for more than 30 minutes and then moves to the other side of the IB.
- The extreme of the failed breakout is the failed auction zone. As per Ray Barros, it is expected to be revisited within 5 days.
- The next day’s initial move is often away from the failed auction zone, which sets up trades back towards it.
- Treat it as a reference level inside your own rules, with defined stops, not as a guaranteed target.
What Is a Failed Auction in Market Profile?
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Failed Auction is often a successful trading pattern in the market profile. It occurs when the Initial Balance (first 60min high – low) is taken out and later within 30mins, a price pullback happens followed by the price action towards the other side of the Initial Balance as shown below. Failure to hold the Initial Balance(IB) break zone for more than 30 minutes is said to be a failed auction. next day’s initial price reaction is likely in the opposite direction of the failed auction zone and later Failed auction Zone is expected to be revisited within 5 days (as per Ray Barros). This provides a tremendous trading opportunity for traders to play this pattern towards the failed auction zone.
Failed Auction Examples from Nifty Futures
Example 1: Failed Auction Zone Repaired After a Gap Down
Above picture shows Nifty futures October Daily Profile Chart and you can notice the formation of Failed Auction where Letter ‘J’ done the Initial Balance (IB) breakout on the upper side followed by pullback within 30min back inside the initial range and then price moved towards the other side of the Initial Balance (IB). so the high of letter ‘J is considered as the fail auction repair zone. And the very next day is RBI policy announcement Nifty Futures Gapped down due to global sentiment there by creating a sentimental gap followed by retesting/revisiting/repairing the failed auction zone.
Example 2: Nifty Futures Failed Auction Zone at 8249
Here is another example where a failed auction pattern is formed recently in Nifty futures October contact at 8249. and you can notice the formation of Failed Auction where Letter ‘C’ done the Initial Balance (IB) breakout on the upper side followed by pullback within 30min back inside the initial range and then price moved towards the other side of the Initial Balance (IB). Similar failed auction pattern is also observed on Bank Nifty as well with Failed auction zone @ 17799.
How to Trade a Market Profile Failed Auction
Here is the step-by-step process I use to spot and trade the pattern. Adapt the details to your own timeframe and risk rules.
- Mark the Initial Balance. For NSE index futures, this is the high and low of the first hour of trade.
- Watch the IB break. Note the TPO letter (period) that breaks above the IB high or below the IB low.
- Time the failure. If price comes back inside the IB within 30 minutes and cannot extend further, the breakout has failed.
- Confirm the move to the other side. The pattern is complete when price travels towards the opposite end of the IB.
- Mark the failed auction zone. The extreme of the failed breakout (for example, the high of letter ‘J’ in Example 1) is the zone to watch.
- Plan the repair trade. The next day’s first move is often away from the zone. Look for trades back towards the failed auction zone over the next few sessions, with a stop beyond your setup’s invalidation point.
Failed Auction vs a Normal Initial Balance Breakout
| Feature | Successful IB breakout | Failed auction |
|---|---|---|
| Hold beyond IB | Price holds and extends beyond the IB | Price returns inside the IB within 30 minutes |
| Range extension | Continues in the breakout direction | Moves to the opposite side of the IB |
| What it shows | Other-timeframe participants accepting new prices | Rejection of the breakout prices for now |
| Follow-up | Trend or range extension trades | Expect a later revisit of the failed auction zone |
If the market instead holds beyond the IB and builds value there, you are looking at range extension, not a failed auction. Traders who prefer to trade with that kind of breakout can study this one-timeframing against the Initial Balance intraday strategy.
Common Mistakes When Trading Failed Auctions
- Calling a failed auction before the 30-minute window has passed.
- Ignoring the bigger picture. A failed auction against a strong higher-timeframe trend is less reliable.
- Assuming the zone must be repaired. Ray Barros’ 5-day window is a tendency, not a rule, so always use a stop.
- Confusing a failed auction with excess (end of auction), which is about the absence of a tail at the session extreme.
A failed auction fits into the larger framework of how markets search for value. If you are new to that idea, start with this introduction to auction market theory for market profile traders.
In the next tutorial we will be discussing about poor low and poor high profile structure
Related: market profile
Frequently Asked Questions
What is a failed auction in trading?
In market profile, a failed auction is an Initial Balance breakout that fails to hold for more than 30 minutes and then reverses to the other side of the Initial Balance. The breakout extreme becomes a reference zone that price tends to revisit.
How long does it take for a failed auction zone to be revisited?
As per Ray Barros, the failed auction zone is expected to be revisited within 5 trading days. In the Nifty example above, it was repaired the next day after a gap down.
Is a failed auction the same as a poor high or poor low?
No. A failed auction is defined by a failed Initial Balance breakout. A poor high or poor low is a session extreme without excess (no tail), which also suggests unfinished business. Both point to levels the market may revisit.
Can I use the failed auction pattern with volume profile?
Yes. The pattern is based on the Initial Balance and time, so you can mark it on any intraday chart. A volume profile adds information on where volume built up during the failed breakout.
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Can today’s 9th October be considered as failed auction?as per the chart shown above..though there is just a single print of C Above IB and price retraced
Yes it is a failed auction. Even the same action is observed in Bank Nifty as well
much awaited post thanx a lot
Hello Rajandran
I appreciate the good work that you have been doing for last many years. Trading community is very thankful to you.
I trade Nifty intraday using price action and few months back I made an observation that we get one of the extremes in the first hour of day and it holds true for around 70 to 80% of the time. I also made a video and published it, have a look here,
http://charttechnicals.blogspot.in/2015/05/one-of-extremes-in-first-hour.html
I felt at that time something was missing in that observation and today after reading your post I got my answer. I can very well now correlate with what you are saying, though you have used market profile and I use pure price action. I feel this concept/observation is worth exploring more and prove to be a full trading system of its own.
Thanks a lot.
UR Dave
Sorry , a basic question.. What is this Chart and what is this A B C D ?
FA was shown in C in Top
But we can see FA in F also in the bottom
How to interpret FA when we have letters below and above initial balance A and B
1. IBH is taken out. 2. Close should be outside IBH or inside ? 3. Next 30 min bar is pulling back into IBH … Pl clarify point 2
Close should be inside the initial balance
on 24th Jun 2020 NIfty chart scanner shows FAILED AUCTION Buy . but price closed out side of IB. Clerify
Certainly failed auction works but I prefer to selectively avoid. One of them is 24th Jun Failed Auction.