Recognising Failed Auctions will give you multiple advantages when taking a trade. It’s a similar but more advanced setup to a Swing Failure pattern where the main difference is the amount of time spent above or below an important level. The strategy is best used on the 30-minute and 4-hour timeframe.
In this tutorial Daniel will go through his criteria to confirm a Failed Auction. These include; volume, Open Interest and time. More importantly, you will learn the ideal place to enter your trade, according to confluence and risk management.
Time Stamps
0:24 – UTILITY
- Recognising a major sing of weakness or strength.
- Very high Risk to Reward trade setups.
- Easy entry trigger and invalidation.
1:35 – IMPLEMENTATION
- Price breaks above a previous high of a range.
- Price comes back down into the range.
- Execute the trade with stoploss above the high made.
2:35 – BEARISH PRACTICAL EXAMPLE WITHIN A RANGE
- Main difference between a Failed Auction and a Swing Failure Pattern:
- Failed Auction: We have a confirmed breakout where we spend some time above the range high before coming back down into the range.
- SFP: No time spent above the high. After taking out the high price goes straight back down.
- Preferred scenario FA:
- Increase of Open Interest.
- Increase of Volume. Caused by lots of traders longing the breakout.
- Price spends some time above the high before coming back down.
- Bearish trade setup:
- Activated once price comes back down below the high.
- Invalidation (SL) above the new high made.
- TP1 could be the last low made before this new high, range POC, CC, Overall range low (All context dependant).
- TP2 is context dependant. Could be range POC, CC, next major monthly level etc.
6:25 – BULLISH PRACTICAL EXAMPLE
- Price takes the lows with resting liquidity, and spends a few hours below that key low => During this time people believe the breakdown is real and would open new short trade and/or close longs.
- Preferred scenario FA:
- Increase of Open Interest.
- Increase of Volume. Caused by lots of traders opening new shorts and/or closing longs.
- Price spends some time below the low before coming back up. FA confirmed when we reclaim the previous range low.
- Order Flow:
- We start to form bullish CVD divergences.
- OI slightly increasing.
- Price reclaims the key horizontal level/ last low made => Trade setup activated.
- Bullish trade setup:
- Long setup activated upon seeing the reclaim.
- Invalidation (SL) below the new low made.
- TP1 could be local CC, overall CC, POC of fixed range from high to low (All context dependant).
- TP2 is context dependant. Could be overall range high.
11:19 – TIPS & TRICKS
- Take profits should be context dependant.
- Daniel’s preferred time frames are the 30-minutes and the 4-hour chart for a Failed Auction. The higher the timeframe, the more follow-through we would expect.
- Similar to a SFP, but slower to form and give better follow-through once confirmed.
- When trading Failed Auctions Daniel prefers Market entry orders after the FA has occurred. The move down is normally quick so there is a high risk of your limit orders not being filled.