» The logic of the market relies on liquidity, quantity, and inefficiency. «
► Liquidity: On the high of this chain is liquidity, the first driver of the market. With out liquidity—with out purchase or promote orders—the market would come to a standstill. It is essential to know that whereas any component on the chart can present liquidity, the important thing issue is the amount.
► Quantity: The second most vital component is quantity—the muse of all our market logic and technique. Quantity straight displays the quantity of liquidity, or cash, that has entered the market.
► Inefficency: The third component is inefficiency, which arises from the affect of quantity on worth. Inefficiencies are graphical representations of quantity at a selected second in time, various by timeframe, and function instruments for analyzing the chart.
Worth all the time strikes from liquidity to inefficiency and
vice versa, or from inside liquidity to exterior liquidity and vice
versa. Therefore, when taking a look at any chart, the Factors of Curiosity (POIs) are all the time worth ranges or zones the place liquidity rests within the type of cease orders, unfilled, and partially crammed orders, specifically Honest Worth Gaps (FVGs), Order Blocks, Rejection Blocks, Help & Resistance at earlier highs and lows, or Fractal Factors.
All these ideas and phrases are briefly outlined and outlined under, and defined intimately with context and chart examples within the following video.
How Honest Worth Gaps (FVGs), Order Blocks (OB), and Rejection Blocks (RB) work.
Balanced and Unbalanced State of the Market
To grasp the deeper logic of inefficiencies and market actions, we have to contemplate two major components. The primary issue is the state of the market at a sure cut-off date: balanced or unbalanced. What does this imply?
When the market is in a balanced state, the amount of buys and sells is equal, and worth hardly strikes, with neither patrons nor sellers dominating the market. That is very uncommon and often happens on days with very low volatility. The second sort is the unbalanced state, which is extra typical of any market. This happens when purchase quantity exceeds promote quantity, inflicting worth to rise, or when promote quantity exceeds purchase quantity, inflicting worth to fall.
Environment friendly and Inefficient Worth Supply
The
second issue is the effectivity of worth supply, which additionally is available in
two varieties. The primary sort is environment friendly supply, the place, within the context
of a sure market motion, each patrons and sellers are current,
permitting for a extra even alternate of belongings.
Environment friendly Worth Supply and Inefficient Worth Supply.
You will need to word that worth supply is all the time an unbalanced course of wherein one aspect—both patrons or sellers—dominates.
The second sort is inefficient worth supply, which happens when the alternate of belongings is uneven in sure worth ranges between patrons and sellers. Which means there are areas available in the market the place orders stay unexecuted or are solely partially crammed, which is a key signal of inefficient pricing. Inefficient worth supply causes a Honest Worth Hole (FVG).
Honest Worth Gaps (FVGs)
A
Honest Worth Hole (FVG) is a formation consisting of three candles the place the
shadows of the primary and third candles don’t overlap one another in each
bullish and bearish variants, indicating an imbalance in shopping for or
promoting stress.
A Honest Worth Hole (FVG) is a 3 candle sample the place the shadows
of the primary and third candles don’t overlap, indicating an imbalance.
A FVG has three ranges: the higher and decrease boundaries, and the 0.5 stage,
Concerning the validity of the FVG when it’s examined, it’s fairly advanced as a result of a lot is dependent upon timing. Nonetheless, the important thing level is that worth shouldn’t shut under the decrease boundary when the FVG is bullish and shouldn’t shut above the higher boundary when the FVG is bearish. An in depth above the higher boundary in a bearish FVG or under the decrease boundary in a bullish FVG can be thought-about an inverted honest worth hole, which can sign a continuation of the motion. All the pieces else is permissible, however a lot is dependent upon the context.
Instance of bearish and bullish FVGs.
Help and Resistance (SnR)
Help happens when two candles type on the chart. The extent the place the bearish candle closes and the bullish candle opens known as Help. That is the place patrons present exercise and forestall the value from falling decrease (Promote and Purchase Candles).
Resistance happens when two candles type on the chart. The extent the place the bullish candle closes and the bearish candle opens known as Resistance. That is the place sellers present exercise and forestall the value from rising increased (Purchase and Promote Candles).
Order Block (OB)
A Bullish Order Block is a worth motion the place the Resistance stage was damaged with subsequent affirmation by the candle physique closing above it.
A Bearish Order Block is a worth motion the place the Help stage was damaged with subsequent affirmation by the candle physique closing under it.
Rejection Block (RB)
A Rejection Block is a two-candle formation the place the vary of shadows types a zone of curiosity, and it would not matter which one is longer or shorter.
Within the bullish variant, it begins on the Help stage. Within the bearish variant, it begins on the Resistance stage.
Fractal Level (FP)
A Fractal Excessive (FH) is the other three-candle formation, the place the center candle has the very best most in comparison with the adjoining candles.
Dealing Vary (DR)
The Dealing Vary is split into two major zones – Premium and Low cost with an Equilibrium stage within the center.
Excessive Resistance Logic
Excessive Resistance is taken into account a motion that has interacted with liquidity (Fractal Raid) or inefficiency (FVG rebalance) often on the identical timeframe, ensuing within the formation of (OB, RB, FVG), plus a fractal level has fashioned as a stage confirming the acute.
