Lesson 18 of 20 · 8 min
Imbalance
Also called Inefficiency
Step 1
What it is
An imbalance, or inefficiency, is a stretch of the chart where price moved one way with very little trading the other way. It shows up as long bodies, small wicks and little overlap between candles.
A fair value gap is the strictest version, where the wicks do not overlap at all. An imbalance is looser. That also means it is easier to see one where none really exists.
Traders use it to mark an area price may come back to. Because the term is loose, we pair it with a strict rule: only the first return counts, and only if it offers 3:1.
Step 2
See it on a chart
A one-sided run of candles on rising volume.
Illustrative chart with made-up prices and tick volume, built for teaching. It is not real market data and not a trade idea.
Step 3
The exact rules
What must be true before entry
- Three or more candles with long bodies and small wicks in one direction.
- The move breaks out of the recent range.
- A clear objective beyond it.
What volume should show
Where to enter
Where the hard stop goes
Where the target goes
What invalidates the idea
- Price returns past the start of the move.
- Price has already come back through the area once.
When not to take it
- You had to look hard to find it.
- The move stopped inside the recent range.
- Major news is due soon, or you would be trading outside your planned hours.
- You have just taken a loss and feel the need to win it back.
Step 4
Your turn: plan the trade
A one-sided move down has broken the range, and price has come back up for the first time. Mark your plan.
This setup is a short. Look at the candles and the volume. Choose a line below, then tap the chart to place it. You can also drag its label or type a price.
Illustrative chart with made-up prices and tick volume, built for teaching. It is not real market data and not a trade idea.
Step 5
The trap: seeing what you want to see
A loose definition lets you find a setup whenever you want one. If you are bored, every chart will seem to have an imbalance. Write down what counts before you look at the chart, and use the same rule every time.
Read why journaling mattersStep 6