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 Sucess. Failed Auction provides traders a great opportunity to trade with a dynamic mindset and construct his/her trading rules accordingly
What is a Failed Auction?
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.
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.
Nifty Futures – Failed Auction Zone Created 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.
In the next tutorial we will be discussing about poor low and poor high profile structure