Wed 9 Apr 2008
Failed Auctions - A Behavioural Parameter of the Market Profile
Posted by ray under Written Plan
Before I begin tonight’s blog, some news: until Wednesday April 16, my blog may be a little late and a little light. I am speaking in Mumbai ( see http://www.theatic.net/2008/speakers.php) and I am not sure what the Internet connections will be like. The mobile phones (cell phones) connections are not that great.
As Figure 1 shows, last night we saw a Failed Auction in the ES Traditional Profile. What’s a Failed Auction? It’s a single print at one end of the profile occurring after the Initial Balance that is followed by a Range Extension at the opposite end. Last night we saw the Failed Auction in the ‘E’ period and the Range Extension in the ‘J’.
A Failed Auction says that we’ll revisit that price (1372) within 5 trading days.
Figure 1 Failed Auction
In the current context, the more interesting thing about the Failed Auction is it normally marks the start of a new IPM in a direction opposite to the Auction - should we fail to see the Failed Auction price in the 5 trading days. In this case, unless we see 1372 by next Tuesday, we are likely to be seeing or will see the start of the 1270 retest.
The Failed Auction becomes a great assessment tool. If the market breaks down now and moves at least 2 ATRs away from 1272 by end of trading Friday, we have a reliable indication that the 1270 retest is underway.
The key is to get set before the breakdown. In this regard, what is tonight’s profile telling us?
Tonight we have a possible test-open. This suggests rotation with a possible range of 22 points. If 1270.5 holds, we can expect to see 1248.5. I am bearish the market and will be looking to see 1269 to 1268 if I see the right volume configuration in Market Delta.
Figure 2 Market Profile April 9
April 9th, 2008 at 7:39 pm
Hi Ray,
Thanks for another great post on MP.
Quick question, I note yesterday (8th Apr) also started with an test open and then subsequently went on to display the auction failure you describe. Is there anything in the context of today (9th) that would give a higher confidence to the development of a normal variation day than yesterday?
Ryan
April 10th, 2008 at 12:56 am
Ryan
Thanks for the question. I’ll answer it in tonight’s blog. It’s not a question I can answer in a few lines
April 10th, 2008 at 2:40 am
Ray
May I add tonight we need to see stronger downside continuation to confirm that the market is seeking a retest of 1270 to 1258 levels.
A failure to provide a follow through will lead to a retest to the upside of the 1370ish to 1380ish areas.
April 10th, 2008 at 3:41 pm
Hi Ray
I am stuggling with this one:
“What’s a Failed Auction? It’s a single print at one end of the profile occurring after the Initial Balance that is followed by a Range Extension at the opposite end. Last night we saw the Failed Auction in the ‘E’ period and the Range Extension in the ‘J’.”
1. Do you consider a single a point or a half point or a quarter point? ES trades in 1/10ths, but if you select that on the profile settings the profile is distorted. So if its a user defined (you use .5, but Tom in his book used .25 pts per tpo) define single prints please. You may also add buying/selling tail as well, because that is 2 or more single prints….which leaves the same issue.
2. On your profile charts, the IB bar, to the left of the profile, covers periods ABCDEFGH. Is that on purpose? Once again, if IB is user defined, you said you prefer ABC (90min), where Tom (from the book)uses AB (60min)as IB periods, that would affect whether a failed auction occured or not.
3. In Toms book, he describes markets trading to a stop, before changing direction. The most common ’stopping price’ (clue)is a ‘neutral day’. The ‘neutral day’ definition, to me, matches the ‘failed aution’ day definition. With the neutral day being the 2nd most common day type, wouldn’t that infer a lot of failed auction days, and hence retests (of course within the appropriate contexts)?
Sorry to be a bit thick.
Regards
Stuart