How do ( FVG, OB, RB ) work?

Summary

This video script introduces three essential tools for market analysis: liquidity, volume, and inefficiencies. It explains how these elements shape market movements and discusses the concept of Fair Value Gap, Order Block, and Rejection Block as key price action elements. The script emphasizes the importance of understanding market states, price delivery efficiency, and the manipulative nature of order blocks, providing insights into how these tools can be used for effective market analysis.

Takeaways

• 📈 Market movements can be understood through three main elements: liquidity, volume, and inefficiencies.
• 💧 Liquidity is the primary driver of the market, as it represents the presence of buy or sell orders.
• 📊 Volume reflects the amount of liquidity entering the market, indicating the flow of money.
• 🔍 Inefficiencies are graphical representations of volume at specific times, showing the impact of volume on price.
• 🧩 The market can be in a balanced or unbalanced state, affecting the dominance of buyers or sellers.
• 🔄 Efficient and inefficient price delivery are determined by the presence of buyers and sellers and the evenness of asset exchange.
• 🌐 The Fair Value Gap (FVG) is a Price Action tool indicating impulsive price reactions to zones of liquidity or inefficiency.
• 📌 FVG levels, including the 0.5 level, can be used as entry points for trading positions based on price reactions.
• 🚀 An Order Block represents a price range with high trading volume, often formed manipulatively and can trigger price reactions when tested.
• 🚫 Rejection Blocks, similar to Order Blocks, show changes in market balance and can indicate potential reversals or continuations of trends.
• 🔗 All market movements are interconnected, moving from one zone of interest to another, reflecting the 'from zone to zone' rule.

Q & A

What are the three main tools for market analysis discussed in the video?

The three main tools for market analysis discussed in the video are the Fair Value Gap (FVG), the Order Block, and the Rejection Block.

What is the role of liquidity in the market according to the video?

Liquidity is the sole driver of the market. Without liquidity, meaning without buy or sell orders, the market would not move.

How does volume reflect the amount of liquidity entering the market?

Volume directly reflects the amount of liquidity entering the market, indicating how much money has entered.

What is meant by inefficiencies in the context of market movements?

Inefficiencies are graphical representations of volume at a specific moment in time, influenced by volume on price, and are used as tools for market analysis.

What are the two main factors to consider when understanding the deep logic of inefficiencies and market movements?

The two main factors are the state of the market at a certain point in time (balanced or unbalanced) and the efficiency of price delivery (efficient or inefficient).

What is a balanced market state and how does it affect price movement?

A balanced market state is when the volume of buys and sells are equivalent, and the price hardly moves, indicating neither buyers nor sellers dominate the market.

What is a Fair Value Gap and how does it form in a bullish scenario?

A Fair Value Gap is a Price Action element formed by three candles where the high of the first candle does not cover the low of the third candle, indicating an impulsive price reaction due to a surge of liquidity.

What is the significance of the 0.5 level in a Fair Value Gap?

The 0.5 level in a Fair Value Gap is often marked as quite strong, and ideally, the price should bounce off it, which can also be used as an entry point for a position.

How does an Order Block differ from a Rejection Block in terms of formation?

An Order Block is formed by a breakout of resistance or support levels and a close above or below it, respectively, while a Rejection Block is identified by two candles with a range of interest in the wicks, indicating a change in balance between market participants.

What is the 'from zone to zone' rule mentioned in the video?

The 'from zone to zone' rule describes the logic that the price always moves from one zone of interest to another, such as from liquidity to inefficiency and vice versa, or from internal liquidity to external liquidity.

Why might the price react when testing an Order Block zone?

The price might react when testing an Order Block zone due to initial positions being closed, unfilled orders after testing, and the zone itself being a balance change point attracting additional position accumulation or distribution.

How are Rejection Blocks identified on a chart?

Rejection Blocks are identified by two candles with the area of interest being the range of the wicks of both candles. It signifies a change in market balance and can be used for analysis regardless of the wick lengths.

What is the final conclusion about inefficiencies presented in the video?

The final conclusion is that any inefficiency on the chart represents areas where orders were left unfilled or partially filled by market participants during price movement, and it's important to analyze these to understand market dynamics.

Outlines

00:00

📈 Market Analysis Fundamentals

This paragraph introduces three key tools for market analysis: liquidity, volume, and inefficiency. It emphasizes the simplicity of market logic and how these elements interact to drive market movements. Liquidity is identified as the primary market driver, with volume reflecting the amount of liquidity entering the market. Inefficiencies are graphical representations of volume's impact on price at specific times. The paragraph also explains the market states of balance and imbalance, and the concept of price delivery efficiency, setting the stage for a deeper exploration of market dynamics.

05:04

🔍 Understanding Fair Value Gap and Order Blocks

This section delves into the specifics of the Fair Value Gap (FVG) and Order Blocks as tools for analyzing market inefficiencies. It describes the FVG as a price action element formed by three candles, indicating areas of unfilled orders and potential price reactions. The paragraph explains how FVG levels can be used for entry points and the importance of timing when testing these levels. It then introduces Order Blocks as areas of high volume trade, often manipulatively formed, and discusses how support and resistance levels are identified. The paragraph also explores the logic behind the formation of order block zones and their potential impact on market movements.

10:06

📉 The Role of Rejection Blocks in Market Analysis

The final paragraph focuses on Rejection Blocks, another tool for identifying market inefficiencies. It explains that Rejection Blocks are similar in logic to Order Blocks but are more dependent on the timeframe and the timing of candle openings and closings. The paragraph describes how Rejection Blocks are identified by the wicks of two candles and how they can indicate areas of unfilled orders or market imbalance. It also provides examples of how Rejection Blocks can be observed across different timeframes and how they relate to the concept of 'from zone to zone' market movement. The conclusion emphasizes the importance of understanding inefficiencies as areas of unfilled or partially filled orders and encourages traders to conduct their own analysis.

Keywords

💡Market Analysis

Market Analysis is the process of evaluating and interpreting market conditions and trends to make informed trading decisions. In the video, it is the overarching theme, with the focus on simplifying the approach to market analysis by emphasizing three main tools: liquidity, volume, and inefficiency. The script discusses how these elements can be used to understand market movements without the need for complex patterns.

💡Liquidity

Liquidity in the context of the video refers to the availability of buy or sell orders in the market, which is essential for market movement. It is described as the sole driver of the market, highlighting that without liquidity, the market would not move. The script explains that any element on the chart can provide liquidity, but the critical factor is the quantity.

💡Volume

Volume is the measure of the amount of liquidity entering the market, reflecting how much money has been invested. The script positions volume as the foundation of market logic and strategy, indicating that it directly influences market movements and inefficiencies.

💡Inefficiency

Inefficiency in the video is depicted as a result of volume's impact on price, representing areas where the exchange of assets between buyers and sellers is uneven. It is a graphical representation of volume at specific moments and serves as a tool for market analysis, helping to identify areas of potential price reaction.

💡Balanced State

A Balanced State in the market is when the volume of buys and sells are equivalent, resulting in minimal price movement. The video script describes this as a rare occurrence, typically associated with low volatility, and contrasts it with the more common unbalanced state.

💡Unbalanced State

An Unbalanced State occurs when the buy volume exceeds the sell volume, causing the price to rise, or vice versa. The script explains that this state is more typical in markets and is crucial for understanding market dynamics and the formation of inefficiencies.

💡Efficient Delivery

Efficient Delivery in the script refers to a market movement where both buyers and sellers are present, allowing for a more even exchange of assets. It is contrasted with inefficient delivery, where the exchange is uneven, indicating a potential area of interest for market analysis.

💡Fair Value Gap (FVG)

The Fair Value Gap is a Price Action element identified in the script as an area formed by three candles, indicating an impulsive price reaction due to a surge in liquidity. The FVG is used to identify potential reversal points in the market, where the price may react and reverse direction.

💡Order Block

An Order Block, as described in the video, is a Price Action element representing a price range with the highest volume traded, often formed manipulatively. The script explains that it is not necessarily the last candle before a reversal but rather a zone of interest where large players may accumulate or close positions.

💡Support and Resistance

Support and Resistance levels are fundamental concepts in technical analysis, representing price points where the balance between buyers and sellers shifts. In the script, these levels are discussed in the context of forming order blocks and are seen as areas of potential market reaction when tested.

💡Rejection Block

A Rejection Block in the video is similar in logic to an order block but is identified based on the timeframe and the specific pattern of candle wicks. It represents a change in balance between market participants and is used to identify potential areas of price reaction.

Highlights

The market analysis is simplified to three main tools: liquidity, volume, and inefficiency.

Liquidity is the sole driver of the market, essential for any market movement.

Volume reflects the amount of liquidity entering the market, indicating money flow.

Inefficiencies are graphical representations of volume's impact on price at specific times.

Market states can be balanced, with equal buy and sell volumes, or unbalanced, with one dominating.

Efficient price delivery involves an even exchange of assets between buyers and sellers.

Inefficient price delivery indicates unexecuted or partially filled orders, a sign of market inefficiency.

The Fair Value Gap (FVG) is a Price Action element showing impulsive price reactions to zones of liquidity.

FVG identifies areas with a lack of participants ready to trade, leading to unfilled orders.

FVG levels, including the 0.5 level, can be used as entry points for trading positions.

The validity of an FVG when tested depends on the context and timing of price movements.

Order blocks represent price ranges with the highest volume traded, often manipulatively formed.

Support and resistance levels indicate shifts in the balance between buyers and sellers.

Order block zones are formed by breakouts and closes above resistance or below support levels.

Rejection Blocks are similar to order blocks but depend on the timeframe and candle openings/closings.

Rejection Blocks consist of two candles where the wicks' range indicates the area of interest.

Inefficiencies on the chart represent areas with unfilled or partially filled orders by market participants.

Fractals are not considered inefficiencies as they manifest post price delivery, not during it.

Market movements are interconnected, and the 'from zone to zone' rule describes this logic.

Transcripts

In this video, I will tell you about the three  main tools for market analysis that you will  

need once and for all. No more patterns  and unnecessary clutter that only hinder  

and bring failures. I am sure you have not seen  anything like this before. Let's get started.

As we already know, the logic of the market is  very simple. It is based on three main elements:  

liquidity, volume, and inefficiency. Any movement  can be described using just these three concepts.

At the top of this chain is liquidity,  

which is the sole driver of the market. Without  liquidity, that is, without buy or sell orders,  

the market simply would not move. It is  important to understand that any element  

on the chart can provide liquidity,  but the question is in the quantity.

The second most important element, the foundation  of all our market logic and strategy, is volume,  

which directly reflects the amount of liquidity  

entering the market. In other words,  how much money has entered the market.

And the third element is inefficiencies, which are  formed as a result of the influence of volume on  

price. They are graphical representations  of volume at a specific moment in time,  

depending on the timeframe. Inefficiencies will be  

our tools through which we will look  at the chart and do our analysis.

To understand the deep logic of  inefficiencies and market movements,  

we need to consider two main factors.

The first factor is the state of the market at a  

certain point in time. It can be of  two types: balanced or unbalanced.

What does this mean? When the  market is in a balanced state,  

the volume of buys and the volume of  sells are equivalent to each other,  

and the price hardly moves. In other  words, neither buyers nor sellers dominate  

the market. This is very rare and mostly  happens on days with very low volatility.

The second type is the unbalanced state,  which is more typical for any market.  

This occurs when the buy volume is greater  than the sell volume, and the price rises,  

or when the sell volume is greater than  the buy volume, and the price falls.

We have sorted this out.

The second factor is the efficiency of price  delivery, which also comes in two types.

The first type is called  efficient delivery because,  

in the context of a certain market movement,  there are both buyers and sellers present,  

allowing for a more even exchange of assets. It  is important to consider that price delivery is  

always an unbalanced process in which one  side, either buyers or sellers, dominates.

The second type is inefficient price delivery,  

which implies that the exchange of assets  occurs unevenly in certain price ranges  

between buyers and sellers. This means that  there are places in the market where orders  

remain unexecuted or only partially filled,  which is a key sign of inefficient pricing.

You may have noticed that inefficient price  delivery is similar to the Fair Value Gap,  

which we will discuss next because it  is the first and simplest tool we use.

The Fair Value Gap is a Price Action element  formed by three candles where the high of the  

first candle does not cover the low of  the third candle in a bullish scenario,  

and the low of the first candle does not cover the  high of the third candle in a bearish scenario.

The logic behind this tool implies an impulsive  price reaction to zones of liquidity or  

inefficiency due to a surge of a large amount of  liquidity into the market, which we also refer  

to as volume for buying or selling. This leads to  an uneven exchange of assets between the parties.

When a bullish Fair Value Gap forms on the chart,  

the range where the wicks of the candles do not  overlap indicates a lack of participants who  

were ready to sell as much as buyers  were ready to buy. In other words,  

there was not enough selling volume to absorb the  buying volume, resulting in unfilled buy orders.

Conversely, when a bearish Fair Value Gap  forms on the chart, it means there was not  

enough buying volume to absorb the selling volume  in that range, leading to unfilled sell orders.

This is the main reason why,  when these zones are tested,  

the price often reacts and  reverses in the opposite direction.

When the highs and lows of the candles overlap,  

we cannot assert that a Fair Value Gap  has formed, meaning the exchange of  

assets between buyers and sellers was much  more efficient. Hence the name Fair Value.

Now let's talk about FVG levels  and the price reaction from them.

Basically, we have the upper and lower  boundaries of the Fair Value Gap,  

but the 0.5 level is often marked as well,  which is considered quite strong and ideally,  

the price should bounce off it. Therefore, it can  also be used as an entry point for a position.

As for the validity of the FVG when it is tested,  it is quite complex because much depends on  

timing. However, in my opinion, the main thing  is that the price does not close below the lower  

boundary when the FVG is bullish and does not  close above the upper boundary when the FVG is  

bearish. This would be considered an inverted Fair  Value Gap, which may indicate a continuation of  

the movement. Everything else is permissible,  but again, much depends on the context.

Let's look at a couple of examples on a real  chart and then move on to the next tool.

A fairly simple example of a Fair Value Gap is  as follows: The price performs a liquidity raid,  

after which very aggressive buying volume  enters the market, forming two FVG zones.  

The price tests the first zone but does  not receive enough volume to continue  

moving further. Then the second, lower zone is  tested, from which a rejection block is formed,  

and the price continues to move  in the direction of the trend.

In the given context, on a 1-day timeframe,  two fair value gap zones have formed. We can  

clearly see that each zone, after being  tested on the chart, forms a new one,  

and the price never closes above these  zones. This means that the Fair Value  

Gap has enough strength to cause the price to  reverse and move in the opposite direction.

An order block is a Price Action element  representing a price range where the  

highest volume was traded, often formed  manipulatively. Forget the assertion that  

an order block is the last candle before  a reversal; this has no logical basis.

First, let's note the two types of  levels that form in the market for  

a full understanding of this  tool: support and resistance.

A resistance level is formed  when there are two candles,  

the first being a buy candle and  the second a sell candle. Where  

the first candle closes and the second  candle opens is our resistance level.

A support level, in turn, is a formation where  the first candle is a sell candle and the second  

is a buy candle. Where the first candle closes  and the second opens is our support level.

Based on basic logic, these levels represent  points where the balance between buyers and  

sellers shifted. This gives us reason to believe  that large players opened or closed their  

positions there. Therefore, there is a chance  that when these levels are tested, additional  

buy or sell volume may enter the market, with  large players buying or selling in these spots  

again. It is believed that in this way, they  can protect their previously opened positions.

How is the order block zone formed?

The order block zone implies a breakout of  the resistance level (buy + sell candles)  

and a close above it for a bullish  order block, and a breakout of the  

support zone (sell + buy candles) and a  close below it for a bearish order block.

Let's imagine we have a zone of liquidity or  inefficiency. For the price to reach this zone,  

there must be sell volume in the  market pushing the price downward.  

This means that someone interested in  this movement must open a short position.

Upon reaching the zone of interest,  two entirely different processes occur  

with the same identical outcome:  the price impulsively moves up.

Why does this happen?

We already covered part of this logic in the  previous video, but I'll quickly recap. When  

there is a liquidity zone, it means that stop  losses of players who previously opened their  

positions are likely located behind a certain  fractal. Thus, this zone is of interest  

to a large player because there are those ready  to buy or sell a lot. They actively exploit this.

This logic works the same way here: the price  tests the liquidity zone, activating the stop  

losses of players who previously opened  long positions. These are sell orders,  

or sell-side liquidity, but at the same time, the  large player's buy orders are activated, allowing  

them to accumulate a large portion of their  position here. Thus, the sell orders acted as  

counter liquidity for the buy orders. The reason  the price moves up impulsively is that the volume  

with which the large player operates significantly  exceeds the volume of everyone else combined.

When the price tests an inefficiency zone like  a Fair Value Gap, it gets the primary buy volume  

due to unfilled orders, often leading to  a reversal in the opposite direction. It's  

quite possible that these unfilled orders  belong to the same large player who wants  

to fill them, providing an opportunity to  accumulate their position at lower prices.

This is why I believe that the order block  mainly has a manipulative formation mechanism.

The same logic works in reverse  for a bearish order block.

Again, the question arises: why does the  price react when testing the order block zone?

There are three main reasons  why this might happen.

The first and most fundamental reason is that  the positions initially opened to push the  

price down and formed the resistance level may  still be open and even in a loss. Therefore,  

it is not profitable for the large player to  hold them if the anticipated price delivery  

will proceed upward. When the price tests roughly  the first half of the order block, short positions  

are closed through buy orders, creating buy  volume that pushes the price up. This can also  

happen at the moment of breaking the resistance or  support level, provoking an even larger impulse.

The second reason an order block  might react is the same unfilled  

orders after testing and the surge  of liquidity into the market.

The third reason is quite interesting and has  logic similar to support and resistance zones.  

An order block is itself a zone where the  balance between buyers and sellers changed,  

or vice versa, which also draws interest  for additional position accumulation or  

distribution. Often, if you look at the  order block from a higher timeframe,  

you can see that it looks like a Rejection  Block, which we will discuss later.

Let's look at several examples on a real chart.

A classic example of how a bullish order block  can appear: The price tests a bearish fair value  

gap from which it receives selling volume,  pushing the price down with the purpose of  

rebalancing the bullish FVG and conducting a  liquidity raid on the equal lows. In this area,  

buying volume enters the market, pushing the price  back up, breaking through the resistance level,  

and closing the candle with a body that forms the  order block zone. This zone is then tested, and  

the price reacts accordingly. It is also important  to note if an FVG is formed in the order block  

zone on the same timeframe or a lower one, as this  provides additional confirmation of its strength.

Additionally, we can see a bearish  order block: breaking through the  

support level, then testing it, and  continuing the downward movement.

If you observe closely, every market  movement is interconnected. Sell or  

buy orders from one instrument are used  to create another, and so on. Therefore,  

one should never forget the "from zone to  zone" rule, which somewhat describes this  

logic. The price always moves from one zone  of interest to another, from liquidity to  

inefficiency and vice versa, or from internal  liquidity to external liquidity and vice versa.

The third and final tool is the Rejection Block.  Its logic of operation is absolutely no different  

from an order block, but the formation of  this tool heavily depends on the timeframe  

from which you are observing and the timing  of candle openings and closings. Similarly,  

there is a change in balance between market  participants, and whether you are looking at  

a support or resistance level, an order block,  or a Rejection Block, it is essentially the  

same concept but displayed differently depending  on the timeframe you are viewing on the chart.

Let's understand how to  identify a Rejection Block.

First, a Rejection Block consists of two candles  where our area of interest will be the range of  

the wicks of both candles. It does not  matter which wick is longer or shorter.

If there is only one candle with a long wick,  

this is considered a simple rejection and  an indication of volume entering the market.  

There is a probability that the subsequent  candle will just continue the movement.

Secondly, it is important for the wick of  the candle to sweep liquidity or rebalance  

inefficiency. However, sometimes a Rejection  Block closes within the area of interest;  

this is also acceptable and can be used because  it does not invalidate the logic of the tool.

Let's look at a couple of examples on the chart:

This is a rejection block formed on a 1-day  timeframe. If we mark this zone and then  

switch to the 4-hour timeframe, we can observe  approximately the same area as the order block.

Another example on the 1-day timeframe, but  this time with a bearish rejection block. If  

we switch to the 4-hour timeframe, we again  see that it resembles an order block zone.

Here, the rejection block is on the 1-week  timeframe. If we switch to a smaller timeframe,  

in our case 1-day, we see the  exact same order block zone.

Let's make a final conclusion and put an  end to the question of inefficiencies.

Any inefficiency on the chart represents  areas where orders were left unfilled or  

partially filled by market participants  in the context of price movement,  

regardless of the reason behind it.

If you wonder why fractals are not considered  inefficiencies, the answer is straightforward:  

orders behind fractals are a phenomenon that  manifests post facto, not during price delivery.

In the end, we have:

- The Fair Value Gap is an unbalanced  and inefficient element in the market  

due to unfilled orders for opening positions. - Similarly, the Order Block is an unbalanced  

and inefficient element in the market due  to unfilled orders for closing positions.

It's important here to conduct your own  analysis to understand this. You may not  

necessarily agree with my opinion  in order to be a profitable trader.

If this video was useful,  

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