Time & Price Algorithmic Trading: PD Arrays

Summary

This lecture provides an in-depth introduction to Price Delivery Areas (PDAs), which are essential patterns for analyzing order flow in trading. The video covers various types of PDAs, including swing highs and lows, rejection blocks, order blocks, fib gaps, liquidity voids, volume imbalances, breaker blocks, and mitigation blocks. Each pattern is explained with clear examples and its significance in identifying key price levels and potential market movements. The lecture emphasizes the importance of understanding these patterns to predict price behavior and align trading strategies with market narratives.

Takeaways

• 😀 PDAs (Price Delivery Arrays) are key foundational patterns in trading, and understanding them is essential to analyzing order flow.
• 😀 The primary PDAs to focus on include swing highs and lows, rejection blocks, order blocks, fib gaps, liquidity voids, volume imbalances, breaker blocks, and mitigation blocks.
• 😀 Swing highs and lows are identified using a simple three-candle pattern: candle 2 is higher or lower than both candles 1 and 3, indicating a swing high or low.
• 😀 Rejection blocks occur at swing highs and lows, with the rejection area drawn from the close of the highest or lowest candle in the pattern.
• 😀 Order blocks are defined as consecutive bullish or bearish candles followed by a reversal. These are significant because they represent areas of strong order flow.
• 😀 Fib gaps (Fali gaps) occur when the lowest low of the first candle and the highest high of the third candle do not overlap, signaling potential market reversals.
• 😀 A liquidity void is a large price gap with no trading activity within it. It suggests that price will eventually fill this gap before continuing in the original direction.
• 😀 Volume imbalances are gaps between candles where no overlap occurs, indicating a strong imbalance of market participants. They help identify where price may return.
• 😀 Breaker blocks occur when an order block takes out both buy and sell-side liquidity, signaling a potential reversal in price movement.
• 😀 Mitigation blocks are similar to breakers but only take out one side of the liquidity, typically only sell-side liquidity, indicating potential support or resistance levels.

Q & A

What is the primary focus of the lecture on PDAs in the higher time frame protocol?

The primary focus is to explain the various price delivery areas (PDAs) used in trading. These PDAs are patterns that help traders measure and analyze order flow, forming the foundation for the trading protocol.

How does the instructor define swing highs and swing lows?

Swing highs and swing lows are identified through a simple three-candle pattern. For a swing high, candle two is higher than both candle one and candle three. For a swing low, candle two is lower than both candle one and candle three.

What is the significance of rejection blocks in this trading protocol?

Rejection blocks form at swing highs and lows. They are used to identify areas where price has retraced into a level and then rejected it, expanding away in the opposite direction, signaling potential support or resistance levels.

Can you explain how order blocks work in the context of this lecture?

An order block is a series of consecutive bullish candles followed by bearish candles (for a bearish order block) or vice versa (for a bullish order block). These areas are important because they represent zones where price has previously reversed and may do so again.

What are fib gaps and how do they relate to the market structure?

Fib gaps are three-candle patterns where the lowest low of candle one and the highest high of candle three do not overlap. They indicate areas where price has gaps, and these gaps can act as support or resistance levels.

What is a liquidity void and how does it differ from a fib gap?

A liquidity void is a larger, more significant gap in the market, often formed by consecutive fib gaps. It represents an area where price has moved with little to no opposition, creating an imbalance that price will likely return to fill.

How are volume imbalances defined and how do they affect market behavior?

Volume imbalances occur when there is a gap between the close of one candle and the open of the next. If this gap is filled by price action, it is a volume imbalance. These imbalances are important because they often signal areas where price could retrace or continue.

What is the difference between a breaker block and a mitigation block?

A breaker block occurs when an order block takes out both buy-side and sell-side liquidity, whereas a mitigation block only takes out one side of liquidity, typically sell-side. Breakers are often stronger signals of a reversal.

What defines a balanced price range, and how is it used in the trading protocol?

A balanced price range is a price zone where there has been an equal amount of buy-side and sell-side delivery. This can be identified either by equal moves up and down or by overlapping fib gaps. These ranges are important because if price returns to them, they are often used as support or resistance.

Why does the instructor emphasize the importance of aligning PDAs with the underlying market narrative?

The instructor stresses that PDAs are just patterns and that their significance comes from aligning them with the overall market narrative. If a PDA, such as an order block or breaker, aligns with the identified trend (bullish or bearish), it can act as a strong signal for price action.