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Imbalances Concepts

Imbalances in market prices arise when there is a great disparity between supply and demand, this can lead to inneficiencies where an asset does not trade at its fair value.

It is common for the price to rebalance after an imbalance, thus returning to the price area where the imbalance ocurred. These areas of imbalances can also be used as support and resistance areas.

The toolkit is able to detect imbalances from three methods:

  • Fair Value Gaps
  • Activity Asymmetry
  • Balance Price Range

Each method is covered in the section below.

Fair Value Gaps

Fair values gaps (fvg) highlight market imbalances from a sequence of three candle where the outer candles wicks fail to overlap the central candle body, the range between the wicks highlight the fair value gap.

A bullish fair value gaps is determined by the central candle being bullish, and a bearish fair value gap by the central candle being bearish.

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It is desirable for the central candle to be relatively volatile. Using the Auto FVG Threshold allows filtering out fair value gaps occuring with less volatile central candles.

Activity Asymmetry

Activity asymmetry is a type of imbalance ocurring during a significant disparity between market liqudity and volatility.

Unlike fair value gaps these imbalances require volume information to be detected. These imbalances can more commonly occur near the extremas of a trend.

A bullish activity asymmetry is determined by the candle being bullish during the occurence of the imbalance, while a bearish activity asymmetry is determined by the candle being bullish during the occurence of the imbalance.

Balance Price Range

Balance price ranges (bpr) imbalances occur when the areas of two fair value gaps overlap. The overlaping areas highlight a new area of imbalance.

A bullish balance price range is determined by a new bullish fair value gap area overlaping a previous bearish fair value gap area, while a bearish balance price range is determined by a new bearish fair value gap area overlaping a previous bullish fair value gap area.

Mitigation Methods

Once price break an highlighted imbalance area it is said to have been "mitigated", and will automatically disappear. Users can determine the condition for an highlighted imbalance to be considered mitigated trough the Mitigation Method setting, available options include:

  • Close
  • Wick
  • Average
  • None

The Close option will remove an highlighted imbalance once price close above its top in the case of a bearish imbalance, and under its bottom in case of a bullish imbalance.

The Wick option will remove an highlighted imbalance once price high reaches its top in the case of a bearish imbalance, and when price low reaches its bottom in case of a bullish imbalance.

The Average option will remove an highlighted imbalance once price cross the average level of an order block.

The None option will not remove mitigated imbalances, thus returning all detected historical imbalances.

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The toolkit make use of a buffer allowing for a maximum of 200 imbalances. Any newly detected imbalance making the buffer exceed this number will cause the toolkit to discard the oldest detected imbalance.

Alerts

Users can be alerted on the detection of a bullish or bearish imbalance, as well as when an imbalance area is mitigated.