Video Transcript:
Hey everyone, it’s Dale here. In this video, I want to show you a very powerful Order Flow concept called the failed auction. The failed auction can tell you if the current trend is likely going to continue or not. It can also tell you where the price is likely to go next, so let’s take a look at it. The concept I’d like to share with you is the failed auction, also called unfinished business. My software draws the failed auction lines automatically, like this red line, this red line, and this red line.
What the failed auction is all about is that every footprint needs to have its high or low formed in a certain way. If you look, for example, at this footprint, then the high needs to look like this: there needs to be zero at bid and then some number on ask. This is how it should look. Also, the low, for example here, should be some number here and then zero. The zero is important. It needs to be like this zero here, zero here that’s important. If it’s not like that, if the low of a footprint looks like this, where this number should be zero but it’s not, then it’s a failed auction. The market should have continued a little bit lower, but it didn’t and went up. The auction failed because markets are always in auction up and down, up and down it’s one never-ending auction. But this is a failed auction. The auction failed, and that’s why my software draws a line here.
The market likes to test those failed auctions because there are imperfections. It shouldn’t be like that, so the market often comes back to test them and create a successful auction. I’m not saying that if the price is moving here, you should just go short because price will want to test that level. It doesn’t work like that. What does work is when you have a failed auction or a cluster of failed auctions, like here where we have three next to each other or very close to each other. If the price comes close, then it’s very likely it will test that failed auction cluster and go below it. That’s how you can use the failed auction theory. When the price is close, it often wants to test it. It works like a magnet.
Let me give you a couple of examples. Here we have a failed auction. This is also a failed auction, and right here is another one. We have a small cluster of failed auctions, and the price comes close and tests that area. For example, let’s say you are short from this place and wondering whether you should quit the trade here for some reason. But you see that there is a failed auction below and another one below that. You may want to hold the trade a bit longer, at least to one pip below the last failed auction, and take your profit there, because a failed auction is likely to get tested, especially if the price comes close to it.
As you can see here and here again, failed auctions got tested. Another example we have a failed auction here, and also some historical ones that are not visible, but we have three lines rather close to each other and price tested all three. Again, we have three failed auctions and you can see what the market does it tests them. When price comes close, it’s likely to continue and test the whole failed auction cluster. Even here, we had a couple of failed auctions from the past, and the market went through all of them. Interestingly, it created a new one afterward. The market likes to test those failed auctions.
That’s about it. I hope you liked it. If you want to learn my complete Order Flow strategy from A to Z, as well as get my custom Order Flow indicators, head over to my website at trader-dale.com. Click Trading Courses and Tools and it will take you to the page where you can check out the Order Flow pack, which includes the full strategy and my custom indicators. You can also get all four packs I offer in one special combo bundle at the bottom of the page. Thanks for watching, and I’ll see you next time. Until then, happy trading.
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