Market Logic is Based on Liquidity, Volume, and Inefficiency | orderbloque

There are 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. The logic of the market is very simple and based on just three main elements: Liquidity, Volume, and Inefficiency. All price action can be described using just these three concepts. 

 

 » The logic of the market is based on liquidity, volume, and inefficiency. «

► Liquidity: At the top of this chain is liquidity, the primary driver of the market. Without liquidity—without buy or sell orders—the market would come to a standstill. It's crucial to understand that while any element on the chart can provide liquidity, the key factor is the quantity: volume.

► Volume: The second most important element is volume—the foundation of all our market logic and strategy. Volume directly reflects the amount of liquidity, or money, that has entered the market.

► Inefficency: The third element is inefficiency, which arises from the influence of volume on price. Inefficiencies are graphical representations of volume at a specific moment in time, varying by time frame, and serve as tools for analyzing the chart.

 

Price always moves from liquidity to inefficiency and vice versa, or from internal liquidity to external liquidity and vice versa. Hence, when looking at any chart, the Points of Interest (POIs) are always price levels or zones where liquidity rests in the form of stop orders, unfilled, and partially filled orders, namely Fair Value Gaps (FVGs), Order Blocks, Rejection Blocks, Support & Resistance at previous highs and lows, or Fractal Points. 

 

All these concepts and terms are briefly defined and outlined below, and explained in detail with context and chart examples in the following video.

How Fair Value Gaps (FVGs), Order Blocks (OB), and Rejection Blocks (RB) operate.

 

Balanced and Unbalanced State of the Market

To understand the deeper 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: balanced or unbalanced. What does this mean? 

 

 

When the market is in a balanced state, the volume of buys and sells is equivalent, and price hardly moves, with neither buyers nor sellers dominating the market. This is very rare and usually occurs on days with very low volatility. The second type is the unbalanced state, which is more typical of any market. This occurs when buy volume exceeds sell volume, causing price to rise, or when sell volume exceeds buy volume, causing price to fall.

 

Efficient and Inefficient Price Delivery

The second factor is the efficiency of price delivery, which also comes in two types. The first type is efficient delivery, where, in the context of a certain market movement, both buyers and sellers are present, allowing for a more even exchange of assets. 

 Efficient Price Delivery and Inefficient Price Delivery.

It is important to note 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 occurs when the exchange of assets is uneven in certain price ranges between buyers and sellers. This means that there are areas in the market where orders remain unexecuted or are only partially filled, which is a key sign of inefficient pricing. Inefficient price delivery causes a Fair Value Gap (FVG). 

 

Fair Value Gaps (FVGs)

A Fair Value Gap (FVG) is a formation consisting of three candles where the shadows or wicks of the first and third candles do not overlap each other in both bullish and bearish variants, indicating an imbalance in buying or selling pressure.

 

 A Fair Value Gap (FVG) is a 3 candle pattern where the shadows 

of the first and third candles do not overlap, indicating an imbalance.

 

 A FVG has three levels: the upper and lower boundaries, and the 0.5 level, 

where, ideally, price action should revisit and bounce off, making it a potential entry point for a position.

Regarding the validity of the FVG when it is tested, it’s quite complex because much depends on timing. However, the key point is that price should not close below the lower boundary when the FVG is bullish and should not close above the upper boundary when the FVG is bearish. A close above the upper boundary in a bearish FVG or below the lower boundary in a bullish FVG would be considered an inverted fair value gap, which may signal a continuation of the movement. Everything else is permissible, but much depends on the context. 

 

 Examples of bearish and bullish FVGs.

 

Support and Resistance (SnR)

Support occurs when two candles form on the chart. The level where the bearish candle closes and the bullish candle opens is called Support. This is where buyers show activity and prevent the price from falling lower (Sell and Buy Candles).

Resistance occurs when two candles form on the chart. The level where the bullish candle closes and the bearish candle opens is called Resistance. This is where sellers show activity and prevent the price from rising higher (Buy and Sell Candles).

Order Block (OB)

A Bullish Order Block is a price movement where the Resistance level was broken with subsequent confirmation by the candle body closing above it.

 

A Bearish Order Block is a price movement where the Support level was broken with subsequent confirmation by the candle body closing below it.

 

Rejection Block (RB)

A Rejection Block is a two-candle formation where the range of shadows forms a zone of interest, and it doesn't matter which one is longer or shorter. 

 

In the bullish variant, it begins at the Support level. In the bearish variant, it begins at the Resistance level. 

Fractal Point (FP)

A Fractal Low (FL) is a three-candle formation where the minimum of the middle candle is lower than the minimums of the first and third candles. Five-candle fractals are considered potentially stronger.

A Fractal High (FH) is the opposite three-candle formation, where the middle candle has the highest maximum compared to the adjacent candles.

 

Dealing Range (DR)

The Dealing Range is a price movement that can be identified using two opposing fractal points (High and Low), regardless of direction. This formation displays the balance between buyers and sellers during a specific time period and helps to more clearly define potential zones of interest.

The Dealing Range is divided into two main zones - Premium and Discount with an Equilibrium level in the middle.
 

High Resistance Logic

High Resistance is considered a movement that has interacted with liquidity (Fractal Raid) or inefficiency (FVG rebalance) usually on the same timeframe, resulting in the formation of (OB, RB, FVG), plus a fractal point has formed as a level confirming the extreme. 

 

Reference:
orderbloque (2024) - How do FVG, OB, RB work? (video)

orderbloque (2024)- Full Guide to the Combo Algorithm Trading Strategy. (video)

Richie Naso (2025) - How Algorithms Impact Market Direction: 80% of Breakouts Fail.

Michael J. Huddleston & Jevaunie Daye (2024) - ICT Time Macros & Quarterly Theory.

 

ICT NQ Review of Week  February 23-28, 2025 (video; no forecast). 

US Stock Rally vs. Market Breadth | Jason Goepfert

The indices soared [on Wednesday, November 6] while the average stock did not. It was one of the worst-ever days for participation on a day the S&P 500 jumped more than 2.5%.

S&P 500 after a >2.5% gain with less than 70% NYSE up issues and up volume.

On the NYSE, fewer than 70% of issues rose, and less than 70% of volume flowed into those issues. This has only happened 3 unique times - the aftermath of the 1987 and 2020 crashes and around the 2000 peak.

Jason Goepfert, November 7, 2024.

 

 S&P 500 futures after gapping up more than 1% the day after the US presidential election.

 

On track for only the 3rd gap up of more than +1% the morning after an election since the inception of S&P 500 futures. The other two were pretty, pretty good.

 

  Jason Goepfert, November 6, 2024.

Six Types of Market Days | Mind Over Markets

In Mind Over Markets (1st ed. 1990) James F. Dalton, Eric T. Jones and Robert B. Dalton describe six types of market days repeatedly seen across all financial markets, but no two days are ever identical: "The labels we will give these patterns are not as important as understanding how the day evolves in relation to the initial balance and the confidence with which the other time-frame has entered the market. Think of the initial balance as a base for the day's trading. The purpose of a base is to provide support for something, as the base of a lamp keeps the lamp from tipping over. The narrower the base, the easier it is to knock the lamp over. The same principle holds true for futures trading in the day time-frame. If the initial balance is narrow, the odds are greater that the base will be upset and range extension will occur. Days that establish a wider base provide more support and the initial balance is more likely to maintain the extremes for the day."

The Initial Balance is traditionally defined as the price range of the first hour of the day, which is extremely important to professionals on the floors of the exchanges. They use the initial balance high and the initial balance low as important points of reference in order to facilitate trade between buyers and sellers.
 

ooOoo

 

1. Trend Day

The Trend Day is the most aggressive type of market day. On a bullish Trend Day, the open usually marks the day’s low, while the close usually marks the day’s high, with a few ticks of tolerance in either direction. On a bearish Trend Day, the open will usually mark the day’s high, while the market will usually close near the session’s low. The market will typically start fast and the farther price moves away from value (roughly 70% of the prior day's range), the more participants will enter the market, creating sustained price movement on increased volume. Initiative buying or selling is responsible for this type of market day, as these participants are confident they can move price to a new area of established value. Price conviction is strongest during Trend Days. 

 

Trend Days have the widest price range (high price minus low price), meaning it is costly positioning against the market or failing to recognize the pattern early enough to enter alongside the market. Trend Days only occur a few times a month, but catching these moves certainly makes money. The Trend Day is usually preceded by a quiet day of market activity, which is usually a day with a small range of movement (Toby Crabels NR4, NR7, ID - see HERE and HERE). However, rare as they are, a Trend Day is oftentimes followed by  another Trend Day.

2. Double-Distribution Trend Day

While the Double-Distribution Trend Day is a trending day, it lacks the confidence or conviction of a Trend Day. Instead, this type of day is characterized by indecision at the start of the session. The market will usually open in a quiet manner, trading within a fairly tight range for the first hour or two, thereby creating a narrow initial balance.

If the initial balance is too narrow, price will break free from the range and auction toward new value, creating range extension, which is any movement outside the initial balance. After the initial balance of the Double-Distribution Trend Day has been defined, price will break out from the range and auction toward new value, where it will form a second distribution of price. This is the market’s attempt at confirming whether new value has indeed been established. The Double-Distribution Trend Day opens quietly, trading within a tight range. Eventually, price breaks free of the range and begins trending toward new value, igniting initiative buying or selling. Once the market finds new value, it then builds out another range before ending the day. The ranges formed at both the beginning and end of the day is where the term “double-distribution” comes from, as the bulk of the day’s volume resides at one of these extremes, essentially forming a double distribution of trading activity.

The initial balance is the base for any day’s trading but extremely important to the Double-Distribution Trend Day. A narrow initial balance is easily broken, while a wide initial balance is harder to break. The fact that the initial balance is narrow on this type of day indicates that there is a good possibility of a breakout from the initial range, indicating that you will likely see a move toward new value.

3. Typical Day

The Typical Day has a wide initial balance established at the outset of the day. Price rallies or drops sharply at the beginning, moving far enough away from value to entice responsive participants to enter the market. The responsive players push price back in the opposite direction, essentially establishing the day’s trading extremes. The market then trades quietly within the day’s extremes the remainder of the session. The opening rally or sell-off is usually sparked by reactions to economic news that hits the market early in the day. This opening push creates a wide initial balance, which means the day’s "base" is wide and will likely go unbroken.

4. Expanded Typical Day

The Expanded Typical Day is similar to the Typical Day in that it usually begins with early directional conviction. However, price movement at the open is not as strong as that seen during a Typical Day. Therefore, the initial balance, while wider than that of a Double-Distribution Trend Day, is not as wide as that of the Typical Day, which leaves it susceptible to a violation later in the session.

 

Eventually, one of the day’s extremes is violated and price movement is seen in the direction of the break, which is usually caused by initiative buying or selling behavior. The initial balance was wider than that of a Double-Distribution Trend Day, but not so wide as to challenge the width of the Typical Day. When the base of the day is neither wide nor narrow, it can be a coin flip whether a breakout will occur. The fact that the initial balance is not wide introduces the potential for failure at some point during the day at one of the extremes. In this particular case, initiative sellers overwhelmed the bottom of the day’s initial balance and extended price movement to the downside. Selling pressure essentially expanded the day’s range, thereby introducing the namesake for this type of day. The initiative selling pressure led to continued weakness the rest of the day, as price moved to establish lower. During an Expanded Typical Day, both the upper and lower boundaries of the initial balance are susceptible to violations. On any given day, one, or both of the boundaries can be violated, as buyers and sellers attempt to push price toward their own perceived levels of value.

ooOoo

 

The last two types of days seem similar, but they have distinct differences that set them apart from each other. The Trading Range Day and the Sideways Day even sound similar, but the difference lies within the participation levels of both buyers and sellers.

5. Trading Range Day

A Trading Range Day occurs when both buyers and sellers are actively auctioning price back and forth within the day’s range, which is usually established by the day’s initial balance. The initial balance is about as wide as that of a Typical Day, but instead of quietly trading within these two extremes throughout the day, buyers and sellers are actively pushing price back and forth. Buyers and sellers will stand at the extremes of the day and will enter the market in a responsive manner when price reaches the outer limits of the day’s range. Responsive sellers will enter shorts at the top of the range, which essentially pushes price back toward the day’s lows, while responsive buyers will enter longs at the bottom of the range, which pushes price back toward the day’s highs. This pattern will continue until the close. A Trading Range Day offers easy facilitation of trade and gives traders amazing opportunities to time their entries.

6.  Sideways Day

During a Sideways Day price is stagnant, as both buyers and sellers refrain from trading. This type of session usually occurs ahead of the release of a major economic report or news event, or in advance of a trading holiday. There is no trade facilitation and no directional conviction. This is a non-trend Day with a very compressed range, oftentimes an inside day, and the risk-reward ratio for day traders is not favorable. The initial balance is rather narrow, which at first indicates the potential for a Double-Distribution Trend Day. However, the initiative buying or selling required for a Double-Distribution Trend Day never enters the fray, which leaves the market very quiet for the rest of the session.

ooOoo

 

Jan Firich (2012)

The market will typically alternate between high and low range sessions. The fact that the market rallies after the formation of a narrow value area causes the value area for the next session to be extremely wide. A wide value area will typically lead to a Trading Range or Sideways Day behavior. When this occurs, the initial balance is usually larger, as the market establishes the extremes for the day’s trading activity, which usually results in a Typical, a Trading Range, or Sideways Day. 

References:

J. Peter Steidlmayer (1989) - Steidlmayer on Markets: A New Approach to Trading.
James F. Dalton, Eric T. Jones & Robert B. Dalton (1990) - Mind over Markets.

 Franklin O. Ochoa Jr. (2010) - Secrets of a Pivot Boss.

Jan Firich (2012) - Futures Trading Based on Market Profile Day Timeframe Structures. 

J. Peter Steidlmayer (2013) - Today's Market Profile: Adapting to a Changing Trading Environment.