Market Logic 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. 

Use imbalances from the lower timeframes for precision entries into a higher timeframe draw on liquidity:

■ For a monthly draw, use weekly or daily imbalances for entry and re-entry.
■ For a weekly draw, use daily or 4-hour imbalances for entry and re-entry.
■ For a daily draw, use 4-hour or 60-minute imbalances for entry and re-entry.
■ For a 4-hour/60-minute draw, use 30-minute or 15-minute imbalances for entry and re-entry.

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 | James F. Dalton

In Mind Over Markets (1st ed., 1990), James F. Dalton, Eric T. Jones, and Robert B. Dalton describe six types of market days that recur across all financial markets—though no two days are ever exactly alike:

"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."

Summarizing all six market day types.

Initial Balance

The Initial Balance is traditionally defined as the price range established during the first hour of trading. It is extremely important to exchange floor professionals, who use the Initial Balance high and low as key reference points to facilitate transactions between buyers and sellers.

 

1. Trend Day

The Trend Day is the most aggressive market day type. On a bullish Trend Day, the open typically marks the session low and the close the session high, with minor variation. On a bearish Trend Day, the open usually marks the session high and the close the session low.

Trend Days exhibit the widest price ranges, making it costly to trade against the move or to recognize the pattern too late. They occur only a few times each month, but capturing them can be highly profitable. Trend Days are often preceded by quiet, narrow-range sessions (e.g., Toby Crabel’s NR4, NR7, or Inside Day patterns). Although rare, a Trend Day can occasionally be followed by another.

Trend Days are driven by initiative buying or selling, as participants show strong conviction in moving price into a new area of value. As price moves farther from value (about 70% of the prior day’s range), participation and volume increase, reinforcing sustained directional movement.

2. Double-Distribution Trend Day

The Double-Distribution Trend Day also trends, but with less confidence and conviction than a classic Trend Day. It begins quietly, with indecision and a narrow initial balance during the first one to two hours. A narrow initial balance is prone to breakout, allowing price to auction beyond the range toward new value.

Once the breakout occurs, the market trends and builds a second distribution of trading activity, testing whether new value is accepted. By the close, volume is concentrated at both the early and late ranges, forming the characteristic double distribution.

The initial balance is crucial for this structure. A narrow initial balance increases the likelihood of breakout, while a wider initial balance makes such a move less probable.

3. Typical Day

The Typical Day begins with a wide initial balance, usually created by a sharp rally or sell-off at the open. This early move pushes price far enough from value to attract responsive participants, who drive it back in the opposite direction and establish the session’s extremes. The market then trades quietly within these boundaries for the rest of the day.

The opening surge is often triggered by economic news released early in the session. Because the initial balance is wide, it generally serves as a firm base that is unlikely to be broken.

 

4. Expanded Typical Day

The Expanded Typical Day resembles the Typical Day in beginning with early directional conviction, but the opening move is weaker. As a result, the initial balance is wider than that of a Double-Distribution Trend Day yet narrower than that of a Typical Day, leaving it vulnerable to violation later in the session.

Eventually, one of the extremes is broken, usually through initiative buying or selling, and price extends in the direction of the breakout. Because the base is neither wide nor narrow, both sides of the initial balance are susceptible to failure, and either—or both—may be tested during the day. Once an extreme gives way, price expands to establish a new area of value, with continued directional movement often carrying through to the close. 

ooOoo

 

The last two day types appear similar but have key differences. While both involve limited directional movement, the distinction lies in the level of participation from buyers and sellers.

5. Trading Range Day

A Trading Range Day occurs when buyers and sellers actively auction price back and forth within the session’s range, typically defined by the initial balance. The initial balance is roughly as wide as that of a Typical Day, but rather than trading quietly within the extremes, participants continually push price between the high and low.

Responsive sellers enter shorts near the top of the range, driving price back toward the lows, while responsive buyers enter longs near the bottom, pushing price toward the highs. This back-and-forth activity continues throughout the day, providing clear opportunities for timing entries and facilitating trade.

 

6.  Sideways Day

A Sideways Day occurs when price remains stagnant, as both buyers and sellers refrain from significant activity. This typically happens ahead of major economic releases, news events, or trading holidays.

There is no trade facilitation and no directional conviction. The session is a non-trend day with a very compressed range, often forming an inside day, and the risk-reward ratio for day traders is low. The initial balance is narrow, suggesting the potential for a Double-Distribution Trend Day; however, initiative buying or selling never develops, leaving the market quiet for the remainder of the session.

 

ooOoo

 

Jan Firich (2012).

The market typically alternates between high- and low-range sessions. When a rally follows the formation of a narrow value area, the next session’s value area often becomes very wide. 

 

A wide value area usually leads to Trading Range or Sideways Day behavior. In such cases, the initial balance is generally larger, as the market establishes the day’s trading extremes, often resulting in a Typical, Trading Range, or Sideways Day.

References:

James F. Dalton, Eric T. Jones & Robert B. Dalton (1990) - Mind over Markets. 

J. Peter Steidlmayer (1989) - Steidlmayer on Markets: A New Approach to Trading.

 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.