Trading With the Overwhelming Force By Spotting Bull/Sell Imbalances

It was over before it began. From the opening shot, the valiant Zanzibars were able to defend their position for about 38 minutes before calling it quits in a war with the British.

Severely outnumbered, it took only minutes before the palace they were defending was on fire and their flag shot down.

Widely regarded as the most one-sided war in history, the Zanzibars clearly didn’t calculate the imbalance of force before making their move.

As the war of the market rages on between buyers and sellers, understanding who owns the prevailing force of volume is the difference between profit and loss. This will allow you to accurately assess who’s in control and where you should enter with the highest probability of success.

Spotting buy/sell imbalances allows you to do this, positioning you with the conquering institutional forces for profit.

The prevailing force in the battle over price

Every minute, millions of retail traders assume aggressive positions, completely unaware of the forces stacked against them. These take the form of imbalances, where there are large formations of buyers or sellers at particular price points.

These points of imbalance can be marked and used for support and resistance levels moving forward.

Imbalances are driven by two groups:

• Aggressive buyers: Impatient buyers willing to take the Ask/Offer in an attempt to push price up.
• Aggressive sellers: Traders interested in pushing price down by taking the Bid.

When these buying or selling groups assume their positions as a pack they can be singled out as an imbalance. A force to be reckoned with. Spotting these imbalances gives you an immediate sense of the size and force attempting to push price.

Finding trading formations that can do real damage

Institutional traders have interests they’re looking out for with every position they assume. As a retail trader, it’s best to know when these positions are being aggressively taken.

With Order Flow Sequence Tracking, this can be easily spotted and analyzed. Note our candle below showing buy imbalances:

• The ‘Ask’ positions on the right, highlighted in blue (22, 21 and 5) are the imbalances.
• Compare these positions to the corresponding ‘Bid’, exactly one tick below on the left – or diagonally across. So the 22 ‘Ask’ positions would be compared to the 4 ‘Bid’ positions one level below.
• You’ll see that there is at least a 300% difference in volume – in this case favoring the buyers.

You can bet buying forces outnumbering selling forces by a margin of 300% will have an impact on price – and in this case it does.

Siding with the winning trend before the route ensues

Had the loyal Zanzibars known there were three first-class cruisers and two attack boats ready to fire on their position they would have thought twice. They could have avoided a shelling from 50+ cannons, or at least better prepared themselves for a defense.

A single buy/sell imbalance in a candle is worth noting. A string of consecutive imbalances stacked together is the equivalent of 50 shots across your bow.

Stacked imbalances, two, three or more instances where one side is routing the other, mark points when control is being assumed. Once these high-volume zones are established, you can be confident that they’ll be revisited in the future with support and resistance.

Let’s see how this plays out across an ES 5-minute chart. In the below example you can see the various individual imbalances as buyers and sellers battle. When looking at the stacked imbalance on the right, note:

• It has a relationship with the price levels established earlier on with the first stacked imbalance on the left. The first started with a stack of two – and culminates with a stack of 4 when the sellers really take over.
• The price levels were revisited both by buyers and sellers with aggressive volume.
• When the stack of 4 imbalances appears on the candle to the right – the sellers have assumed control and the route is on.

As this trade entry developed, timing your entry when the second stack appeared would have put you on the right side of the trend. This move would have come with confirmation of a prior stack and multiple points when that price level was tested.

Separating volume skirmishes from all-out assaults

In the heat of battle, especially right around fair price – there’s likely to be imbalances on both sides.

You’ll notice that the candles in our example contain multiple instances where both sides have an imbalance that’s sizeable. It may seem that the prevailing force has yet to be determined.

Evaluating these individual occurrences in the context of the entire candle will bring clarity to the picture. In each instance the final score of the candle is kept on top – telling you what the final score was between buyers and sellers. This alone can give you an initial sense of who is gaining the upper hand.

Viewing the margins between buyers and sellers surrounding an imbalance will also tell you if it’s an anomaly or not. Often individual imbalances are coupled with smaller, but sizeable, imbalances that didn’t quite meet the 300% margin threshold.

If in the end, the margins are small – be cautious and don’t enter until it’s been determined who will assume control. If the margins are building, be on the lookout for a stacked imbalance that’s tied to previous high-volume price levels.

Trading with the overwhelming force for profit

In the end, the Sultan made a run for it while his remaining forces were left holding the bag. In total, the Zanzibars had 500 casualties, compared to the single British sailor who had minor injuries.

Today, millions of retail traders assume positions they believe they can defend – completely unaware of the overwhelming forces about to move against them. Lift yourself above the fray of conflict and spot the winner before the first shot is fired with Order Flow Sequence Tracking Intelligence.

Spot the overwhelming forces driving price among aggressive buyers in any given market through the clear imbalances presented in any given candle. Separate individual imbalances from the stacked groups that signal momentum and potential change. Verify the stack with prior price volumes and imbalances for confirmation.

Make your move only after the prevailing side has revealed itself. Profit victoriously while your competition raises their white flag.

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