#orderflow #daytrading #futurestrading
Technically we could make the argument that any auction that moves from one price to another price has basically completed the auction at that price. That’s technical, we must examine how the trade unfolds.
➢ Remember: Price moves when an aggressive Traders absorb all available passive orders sitting at the Bid or Ask in the order book.
➢ Aggressive Buyers must buy into all orders that are sitting on the ASK price from passive selling Traders for price to move up.
➢ Aggressive Sellers must sell into all orders that are sitting on the Bid from passive Buyers for price to move down.
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The Footprint chart below shows examples where aggressive Buyers stopped buying at the higher ask price and aggressive Sellers stopped selling the lower bid price. Essentially price could not move up to extend buying or down to extend selling. We refer to this specific signal as a completed auction.
➢ Note its an anomaly that may signal a point of change or a breather for aggressive Traders to reevaluate their positions.
➢ This Order Flow presented to us Traders in The Pit must be coupled with the other conditions I have built prior to this.
The Footprint indicates an auction is completed when there is a 0 x or x 0 at the high or low of your Footprint Bar.
On the top of the bars, you see the 0 X 30 and 0 X 36. This is indicating that there are not enough aggressive Buyers to move price up. Therefore, strong aggressive Sellers are coming in on the Bid below. This is being expressed as an imbalance. My software turns this Bid Trade red indicating a Selling Imbalance of at least 400% is in progress.
On the bottom of the bars, you see the 31 X 0 and 16 X 0. This is indicating that there are not enough aggressive sellers to move price down. Therefore, strong aggressive Buyers are coming in on the Offer above. This is being expressed as an imbalance. My software turns this trade at the Ask green indicating a Buying Imbalance of at least 400% is in progress.
➢ Note these are excellent indicators of a reversal in price action, and they are an excellent way of managing risk. However, they do not always hold and if the price is ripping one direction or the other, they can form in the middle of a bar as poor structure.
The best way I have learned to use Completed Auctions is when it is paired with either Faded Volume or an Imbalance or both.
Footprint Charts (Unfinished Auctions / Business)
In the previous section on completed auctions the discussion centered on how a completed auction is displayed on the chart. Here I will dissect what happens when we are given signals that a viable auction is still in process. Two-sided trade happens when we have aggressive Buyers lifting the Offer / Ask and aggressive Sellers hitting the Bid. This means there is two-sided action happening at the high or low of a chart bar.
When both side of the Footprint (Bid / Offer) have trades that occurred at the High or Low of a bar we view this as Unfinished Business.
➢ Note to remember. We are evaluating these conditions on a 60Min chart.
➢ Theory: If active two-sided trade is occurring at the chart bars top or bottom, we can assume the market will return to this price.
➢ This Unfinished Business becomes a target for our trade.
➢ Review the chart below to become familiar with these phenomena.
Unfinished Business is the opposite of Complete Auctions. As shown in this example there is no 0 at the top of this move. There is two-sided trade. The market momentum suddenly changes and carries the price away from where there was business being conducted and why it is called “unfinished business.”
It is very common to return to these areas and finish the business and leave a completed auction in its place or continue the move beyond where the business was left unfinished as shown in the below image.