FVG question

[cashclay]

Im just curious. I saw in a couple of videos that said after a FVG occurs the price has to return because of inefficiency. I understand that means the market has to correct itself after a massive turn in one direction but my question is why? Why does a FVG or inefficiency have to correct itself? The answer in the multiple youtube states because there are buy orders there that hasnt been completed but my reaction is so what? They placed wrong buy orders and it didnt get filled so why does after a FVG occur does the market have to return back to that area to fill those orders?

Thank you for any replies or help but also please remember that I am a newbie not a financial genius ...

 

[SunTrader]

Gaps don't have to do anything ... right away. Or sometimes even anytime soon.

But all gaps, all, at some point get filled.

For those who don't think so look to former GM stock that had gaps for decades until 2007-2008 mortgage meltdown/credit crunch hit. and plenty of other examples.

 

[maxinger]

Im just curious. I saw in a couple of videos that said after a FVG occurs the price has to return because of inefficiency. I understand that means the market has to correct itself after a massive turn in one direction but my question is why? Why does a FVG or inefficiency have to correct itself? The answer in the multiple youtube states because there are buy orders there that hasnt been completed but my reaction is so what? They placed wrong buy orders and it didnt get filled so why does after a FVG occur does the market have to return back to that area to fill those orders?

Thank you for any replies or help but also please remember that I am a newbie not a financial genius ...

The more you view those youtube, the more you have to contaminate your mind.

When there is an up gap, price can
- continue to go up right away
- close the gap and then continue to go up
- reverse direction
- remain at it is

The possibilities are endless.


Anyway, do your own analysis.

Please update INVESTOPEDIA as the FVG definition is not in there.

 

[cashclay]

Thank you.. Im just asking after a parabolic or an severe increase in move why does the price have to come back to that area? The reason why it does in the futures market is because there was an inefficiency AND it created alot of buy/sell orders that didnt get filled. So therefore it comes back to that area for it to get filled. My question is why and so what it didnt get filled.. They placed the wrong orders and thats that... Im talking about the futures markets/nasdaq and s&p

 

[SunTrader]

Thank you.. Im just asking after a parabolic or an severe increase in move why does the price have to come back to that area? The reason why it does in the futures market is because there was an inefficiency AND it created alot of buy/sell orders that didnt get filled. So therefore it comes back to that area for it to get filled. My question is why and so what it didnt get filled.. They placed the wrong orders and thats that... Im talking about the futures markets/nasdaq and s&p

Applies equally to futures as well.

Short term, long term. Forex etc.

 

[Concinnity]

Thank you.. Im just asking after a parabolic or an severe increase in move why does the price have to come back to that area? The reason why it does in the futures market is because there was an inefficiency AND it created alot of buy/sell orders that didnt get filled. So therefore it comes back to that area for it to get filled. My question is why and so what it didnt get filled.. They placed the wrong orders and thats that... Im talking about the futures markets/nasdaq and s&p

In theory I just see it as them coming back to equilibrium after one side losing, capitulating or whatever words one wants to use. If one group is short and one group is long someone's going to eventually lose and get overwhelmed once that happens and supply runs out for one side, than price accelerates.

Think of all the parties involved in let's say a short covering rally. Let's say tons of shorting, not much progress being made down and selling supply drys up. Well shorts start covering(become buyers) new longs are entering on that action (new buyers) and than any other short that is entering in the squeeze in a lot of cases just adds fuel to the fire because again their's no selling supply for them to cover lower so they also become a buyer. Than once shorts capitulate and everyone see's the up move wants to jump in late, we're primed to look for a potential reversal, as we fill back in some of the move we leave imbalances behind to the upside that will also get retraced.

If you're talking about actual application than you can use two EMA's and based on the separation of them get some context as to probability and time(how quickly) we are likely to fill in imbalances. For example if we're really bearish (EMA's are separated and pointing down) and we get a high velocity up move that is overbought(different ways to measure overbought) than we have a higher probability to retrace that move and also generally retrace it very fast.

Now if we have overbought in the opposite scenario when context is bullish, often these moves tend to extend even further and do not retrace until much later. So often it's good to hold your long into an overbought scenario and in some circumstances it actually can be a solid trade to even start a new long(under right context and with experience).

Yes, I ramble that's just the way I do it.

 

[Money Trust]

Im just asking after a parabolic or an severe increase in move why does the price have to come back to that area? The reason why it does in the futures market is because there was an inefficiency AND it created alot of buy/sell orders that didnt get filled. So therefore it comes back to that area for it to get filled. My question is why and so what it didnt get filled.. They placed the wrong orders and thats that... Im talking about the futures markets/nasdaq and s&p

To be honest with you, it really doesn't matter why. If it's a repeatable pattern and you've determined how to trade it, that's all that matters. All of that other stuff is just course-peddler talk.

 

[Concinnity]

Well that's why I gave a theory and also gave a practical application and example of how one might be able to take advantage of the means reversion, equilibrium, imbalance being fill or whatever language one wants to use.

If that's not a sufficient answer not sure what is.