Imbalance is a really great tool in our trading arsenal, it's part of our methodology that we can really utilise and use to our advantage when we are analysing the market looking for entries and exits.It can help us:
- Find targets
- Improve understanding of market movement
- Creates cause for the market to move into a area
Gaps are sharp breaks in price with no trading occurring in between. Gaps can happen moving up or moving down.
In the forex market, gaps primarily occur over the weekend because it is the only time the forex market closes. Gaps may also occur on very short time frames such as a one-minute chart or immediately following a major news announcement or potentially on overnights (the period between the US and Asian session).
Naturally, we’re going to see an imbalance when institutions are involved within the market, they're going to push prices leaving behind heavy bullish or bearish full bodied candles. Just like gaps within the market, these imbalance drives are typically filled at some point within the market cycle.
Remember, this move doesn’t have to happen straight away other technicals can play out before this occurs but can give us an indication of where we can forecast the market heading next.
You can also see imbalance pretty clearly when the market sees a period of large volume.Take a look at this example: https://www.tradingview.com/x/ANZKMlGL/
You can see the market pushed to the upside from the 1.16640 level very impulsively. Huge volumes stopped into the market creating bullish engulfing candles, after bullish engulfing candles. Naturally the market is going to be sucked back into these areas where the market has had little selling pressure / pullbacks.
It is an imbalance within the market that needs to be filled.
So we can use this to our advantage and trade back down into these regions
Use them as a confluence as part of a long position in this scenario.