Lesson 4 - Inefficiencies in Price (Part One)

Hi guys, welcome along to the next lesson. I hope you are well. And today, once again, we're going to move this further forward. And I want to talk to you about inefficiencies within price and why inefficiencies are so, so powerful. If you want to make it as a forex trader trading this particular strategy that we trade, what is so important about inefficiencies is that price will look to rebalance. Now, what we understand is that price will run in certain cycles. We get consolidation, we get trending expansions, and obviously we get reversals and things like that. But we know price has to push in cycles to the upside. When price expands, it has to retrace. It then expands, it has to then retrace. The market has to breathe. Think of it as a car driving, running out of petrol, filling up, expanding again. So driving off, filling up with petrol, driving up, filling up with petrol. And then what you end up getting is areas of inefficiencies being left behind. Now, when price expands, what it's going to do, because price expands pretty quickly, price will be buying. So this is buying pressure right here. Now, when you have buying pressure, you leave areas of inefficient price action. Now, this here is movement to the upside, which means there are only buyers in the market, which means sellers have got to come back. And this is the retracement phase. They will come back to areas they can magnify from, such as areas of inefficient price action. It is inefficient price action for the sellers because the buyers were only involved in the market at this point here. So the sellers are coming back to rebalance this price action. And this is a really simple concept because you can see once again here, price will expand. It will leave more areas of inefficient price action. Price will then retrace back into this sell side area or buy side area, and then push to the upside again. And that is what allows price to expand. You will never see a situation where price will just expand forever. Price always has to retrace at some point and it retraces back down to discount levels such as premium discount levels. So it will come below the 50% of the range, usually into an area of inefficient price action and then push higher. But you're very unlikely to see a huge expansion that will last for days and days and days without some form of retracement into areas of inefficient price action. But if we're to dive a little bit deeper into it now, when we talk about this price action here, this is buy side imbalance. So this is leaving an area of imbalance. And what I mean by that is you've got three candles which are formed right here. Now we understand this. We've done this within price action on previous courses. We've spoken about imbalances. We know that the wicks that are being left alone and that are created within these areas here, we know that is going to be a level of imbalance between the area there. We understand that. But what you have to understand is this here is a buy side imbalance. And if you were to invert it the other way, it would be sell side imbalance. So for example, this blue indicates buying pressure. Now we can highlight this whole area of imbalance right here. And I can tell you now that is an area of imbalance. But we now need to go a step further. So that is imbalance of price. But it is buy side imbalance. Okay, so buy side imbalance. Now, that isn't just buy side imbalance, that is a certain type of inefficient price action. So it is buy side imbalance, sell side inefficiency. I can't see. Okay, so that is buy side imbalance, sell side inefficiency. And you would have heard a big term usually called a busy. So that's the best way to basically say it without having to spell out what you've just wrote. So it's a buy side imbalance, sell side inefficiency, a busy because there are only buys in the market. And the reason it is sell side inefficiency is because it is inefficient price action to the sellers. So you can see here what the sellers doing, they're coming back into this area of inefficient price action. And they're expanding to the upside. Now we've actually left a huge area of buy side imbalance, sell side inefficiency here. But price only felt the need to come into this area here. And actually, it didn't even fill this whole area in, it only came, it just about came below 50% of that area and then push to the upside. And because price is equilibrium, price can respect levels of 50%. So you can see that 50% of the busy was respected. So once that has been respected, we can then understand that price can go and this is to basically tell you this is an extremely bullish market. Okay, this is an extremely bullish market. And these areas look to get respected all the time. And to invert it now the other way, and we can see loads of examples here, you can now see if price starts to retreat, reverse, it will leave more areas of inefficient price action. So we know now this is a busy buy side imbalance, sell side inefficiency, busy there. Now, if price action sells and physically breaks this market structure here, what you are left with is more areas of inefficient price action, but now there are sellers in the market. So that would be your sell side imbalance, buy side inefficiency, which is a civvy, because there are only sellers in the market here. And as you can see, in real time just above, you've got this sell side imbalance, which is inefficient to buy side. So buyers have to come back into the market and rebalance that price action to come back down. And you can see there it filled pretty much all of it, even went a little bit higher, and then ended up rejecting those levels to take it to the downside. And within price, on a higher timeframe, if you can search for areas of inefficient price action, and you are there within time element and price element, what I mean by that is, if you are inside this area here around the London session or the New York session, you can utilize this for potential sell opportunities. And then once again, you can utilize this area right here for potential sell opportunities. And it's all about understanding where you are within time and price. And I would also urge you just to go back and really backtest the strength of these areas of inefficient price action. Because we know that we like to come down to smaller timeframes, but you could honestly swing trade. And what I mean by swing trade is you're using a position on a higher timeframe. And you're accepting that you're going to be in the position for longer. But I'm not being funny, you could have been a huge amounts of profit with these prices right here. I mean, that would take you to a four to one. So if you risk 2% of your 10,000 pound account, you're nearly 800 pounds to the good. But this is a lot less stressful by just entering into these positions right here. So you can enter in here, you can enter a smaller timeframe, you can use this as confluence, you can do whatever you want. Now, when you start seeing these areas get rejected, and what I mean by that is you start seeing price close above these areas here, that is now turned into an inverse. And inverses are so, so powerful, because they give that little bit of confirmation that price action is highly likely to disrespect because what they're telling you is that buyers are in the market, they're not seeking to rebalance into this buy side inefficient price action, they are seeking to actually go above and beyond and they don't need this price action that there's strong buying power in here. And that's before we've even taken price above this structure here. So now we know that we've got this inverse, how can we potentially utilize it? Well, what I'm looking for now is for price to come back into this inverse, there's going to be a lot of orders in here, because people don't understand inverses. So where I was talking in the last video about auction market theory, more people are going to be selling in this area because they're going to trust this area still. So what we're looking to do is to take price back into this area with manipulation. So now we know manipulations in play, we're waiting for price to come up again, and create another area of imbalance. But this time, we're looking for a different type of imbalance, because there are only buyers in the market. So that is buy side inefficiency, buy side imbalance, sorry, sell side inefficiency. So with that in mind, what we have got here is price action coming back down to respect these levels here. Now the question you might ask yourself is, yeah, but I sold this on a higher time frame, and I lost because I saw this happening. That's absolutely fine. All that means is you are out of your position, you've taken a loss. But if you're using these areas of inefficient price action to buy here, buy here, sell here, buy here, let's say you took one, two, three, four, five trades. Okay, so if you took five trades, and you risk 2% on each trade, and each trade would give you a one to three in return. Well, you've won four of your trades. Okay, you've lost, lost one trade. And this is risk management. Okay, so you're down minus 2%. But because you won four trades, which would give you 6% each, 6, 12, 24%. So you are up 24%. A one to three risk in 2% will give you 6%. 6, 12, 24, double that. So 24%. So take away your 2%. Overall, you are potentially up 22%. So don't sit there and worry that you've taken a loss. You're not aiming to be right in the market every single time. But you just don't need to be. Because I said this in the previous video, I said this today, you're not going to win every trade and no strategy is 100%. There is nothing you can do about it. Even if you lost two trades, and you won three trades, or you lost more trades, you would still, utilizing risk management, be there or thereabouts. That's the power of utilizing risk management. So yeah, you might have taken a loss here. But now this is an inverse, and this has created a BC, it's giving you more confirmation that price is going to come back in, and then respect that level. And then price is going to come into here. Now, utilizing what we know, based on what we learned in the last lesson, there is a BC here now. Okay, this is clearly moving higher. Where is this moving higher to? Well, it's clearly moving towards that area of liquidity. What is above there? People selling price action. People are selling here, down to this level here. People are buying here, people are buying here, people are selling here, people are selling here. What is the market actually doing? The market, ladies and gentlemen, is engineering liquidity. And it is utilizing buy side imbalance, sell side inefficiency, sell side imbalance, buy side inefficiency. Price is inefficient from the sellers. So the sellers are coming back to rebalance. Price is inefficient to the sellers here. Price is coming back to rebalance. Price is inefficient to the buyers. Buyers are coming back to rebalance. Price has swept below this liquidity here. Now, we have rejected this area, this previous CB. Buyers are showing too much willingness to move higher. Clearly, after sweeping areas of liquidity, we now want to take price higher. What's our extra confluence? Bearing in mind, we've just taken a loss here. We've now turned that into an inverse. And that can be an inverse fair value gap or imbalance, whatever you want to call it. Guys, these terminology is subjective. Call it whatever you want. You can make up your own name for it, if it means you can understand it. You can call it an inverse imbalance, an inverse fair value gap. There is no right or wrong as long as you understand the meaning of what it's actually doing. It's inverted this price action. So now it's an inverse because it's moving in the opposite way now. But you don't have to call it a fair value gap. You don't have to call it an imbalance. Make up any name you want for it. And that is the honest truth, in my opinion. Because if you can utilise a way to make profits from the markets by doing this, it doesn't matter. That's your secret. But look here now. We've created this inverse. Price has come back down into the inverse, rejected from the inverse, created another BSE. So now we know the market is engineered to take out this liquidity. What's the first thing that tends to happen after that? And now we know it creates an inverse. We know price usually will push to the upside. Now when price expands to the upside heavily, creating another buy side imbalance, because there's only buys here, sell side inefficiency, it's inefficient for price action to the sellers. We know that price is going to rebalance into that area in there. So let's look at the facts here and understand that when we move on to this time frame and we utilise understanding where these areas of inefficient price action is. So we know this here is a BSE. We understand that this area here is a BSE. We understand that these areas here is your CIBI. Why is that a CIBI? The reason it's a CIBI is because it is sell side imbalance, buy side inefficiency. The one up here is a CIBI. Why is that a CIBI? Sell side imbalance, buy side inefficiency. What buy side done? They've come back up. They've rebalanced. They've turned that one into an inverse because they've come up to the higher one. When you see two in one, obviously just understand that this could be sacrificed for the price to come back up. And as you can see, it came right back up to the order block as well. So beautiful, beautiful price action. And the fact that it respected it with the bodies gives you more confluence as well. And that's another thing as well, guys. When you see a body, when you see price pushing higher, everyone thinks it's bullish. But when the body actually closes and you see that it's respected that, you have to understand that this price action has again taken out that liquidity. It's clearly showing you sell side, sell side intentions. Where's it coming? It's coming for that liquidity there. So you can sell here, here, here, all the way down to here, knowing it's going to target the area there. What has it done? It's pushed now to the upside. We've extended our way. We've created an inverse within here. You can see here this BC was created, but we're still inside an inverse. Maybe that's a little bit risky. What can we see that's been created here? An inverse. So now we have created the inverse. We can see price came up and actually came back down into the inverse, expanded to the upside, creating this huge BC. What is price doing when it gets into there? Respecting it and then pushing higher. The fact that it didn't come down and fill all of it, but the fact that it did come down to at least a 50% level is showing you that there is willingness to take this thing to the upside. You don't have to overcomplicate it anymore. You can see again, price expands aggressively. Another BC is left. Price expands after sweeping liquidity within this BC right here, creates another BC. What's very interesting about this BC right here? And the BC again, what is it? It is buy-side imbalance, sell-side inefficiency. You can see here price came into it, manipulated lower, really, really lower, but pushed to the upside and respected it with the bodies. Now we know the bodies are respecting price action. Where's it going? Towards this area of liquidity.