In today's Footprint Friday post we want cover a very specific Footprint strategy that can present itself in any market. It is called an "unfinished auction" and has a specific Footprint pattern to watch for.
An "unfinished auction", sometimes called "unfinished business", is the term used to describe when the extreme price for a bar (either high, low, or both) has both buy AND sell volume. This pattern is only visible on a Footprint chart because you can "see inside the bar", allowing you to see things everyone else misses.
An unfinished auction that occurs on the high tick looks like the example below. Notice there is both bid and ask volume at the extreme (high price).
So while at each price there is a battle between buyers and sellers, the unfinished auction pattern shows that buyers want to take price higher but are being challenged by sellers. We have found this pattern creates a huge target for the market to retest usually within 30 minutes. Whether it happens immediately or not, price tends to come back and test or trade through where the unfinished auction pattern occurred. That's why we call this Footprint pattern an unfinished auction.
A "completed auction" is when the unfinished auction has been satisfied. It is satisfied when the price of the unfinished auction trades again. So the expectation is for price to return to the price level of the unfinished auction. This typically seems to occur within 30 minutes. The first example below took exactly 30 minutes to "complete".
Here is another example that happened not long after the example above. This one took 25 minutes to complete.
Here's an example from the Bund. It took 22 minutes to complete.
Believe it or not, you will experience this pattern more than you probably expect. We suggest only applying the pattern at swing highs or swing lows, or at key levels you may be using.
One practical way of applying this pattern is when the market is trending higher, look for an unfinished auction pattern at the highs and buy the pullback with a target at the unfinished auction price. Vice versa for a market trending lower.
Here is an example. The market had been trending higher when the unfinished auction pattern occurred. This tells us to be patient and look to buy a pullback because the market is likely to retest the unfinished auction. We had a level on our chart at 1886 and that would be a logical place to establish a long position. Once long, the profit target would be the price of the unfinished auction, or 1891.00. As soon as 1891 trades the pattern is considered complete. The market may continue trending higher, but when it comes to trading this pattern it would be considered complete on the retest of 1891.00.