Market Failure Patterns: Signals the Auction Is Breaking Down
A market failure pattern is the moment the auction stops supporting the current direction. The move looks strong… until it suddenly isn't. These patterns show up everywhere, and if you know what they mean, you stop getting trapped in dying trends.
Why Market Failure Happens
Market failure occurs when:
- aggressive traders lose control
- liquidity dries up
- passive players step in with size
- imbalanced structure collapses under its own weight
You’ve seen the building blocks earlier in microstructure imbalance and absorption. Failure is what happens when those imbalances can’t sustain themselves anymore.
Common Market Failure Patterns
1. Failed Breakout
Price breaks a key level, stalls, then snaps back inside the range. Classic trap pattern.
2. Failed Breakdown
Same as above but inverted — sellers lose control after pushing into an area without commitment.
3. Exhaustion Wicks
Long wicks in one direction with no follow-through show someone got run over.
4. Absorption Reversal
One side slams orders, the other side absorbs everything and flips the move.
5. Trend Failure After Parabolic Drive
A fast, stretched final push that collapses instantly when the last buyers or sellers disappear.
What Failure Looks Like in Orderflow
- aggressive orders stop moving price
- large resting orders refuse to break
- momentum slows even as volume spikes
- counterflow becomes more confident
This is the moment the auction says: “No more.”
Behavior Right Before a Failure
You’ll usually notice one or more of these:
- buying into resistance or selling into support
- thin zones ahead being filled slowly
- weak rotations that don’t rebuild structure
- a final push made entirely of small players
How to Trade Around Failure
1. Don’t Chase the Last Push
Most traders lose money entering at the exhaustion point.
2. Wait for the Failure Confirmation
A simple rule: if the move made progress and instantly lost it, it’s failing.
3. Enter on the First Pullback After Failure
That’s usually the cleanest entry into the reversal.
4. Use Tight Risk
Failures reverse fast — get in clean or don’t get in.
The Bottom Line
Market failure patterns are warnings the auction is done moving in its current direction. If you recognize these signals early, you stop being the trader buying the top or selling the bottom, and start positioning yourself where momentum actually makes sense.