Efficient Ranges - Bootcamp Ep.5

Okay, welcome to technical boot camp

episode 5. In this class, we are talking

about efficient ranges. So, efficient

ranges are pretty much the opposite of

what we discussed last week when we

talked about imbalance. Efficient ranges

are areas that are not imbalanced, but

they give you really good trading

opportunities if you understand them.

So, in this class, we're going to talk

about how to identify and understand

efficiency, how to successfully trade

efficient ranges, and how to use it for

more market clarity than you already

have. I think this one is incredibly

valuable. If you watch all of this, it's

going to open up something that you

didn't know before that's going to help

you to take some really good trades. So,

with that said, let's not waste any

time. Let's get straight into the

education. In order to understand

today's class, you must have watched the

previous lesson on imbalances. Now, if

you recall, imbalances are the open

price ranges between demand zones like

this area here and where price is

currently trading that haven't yet been

filled. So an imbalance is basically an

open impulsive price movement from a

demand up to where price currently is.

Now that means that every one of these

previous movements where we have demand

zone and drive away were at one point an

imbalanced price range before the market

made this return to the demand this

range here was imbalanced. But when the

imbalance is filled, so when each of

these movements are filled by this

returning corrective move, then these

imbalances no longer exist. And these go

from being called inefficient ranges. So

when it's imbalance, it's an inefficient

range to when it is filled, it's an

efficient range. So every time we have a

push away and then a pullback and a

retest of a demand like this, we create

an efficient range. All right? So

there's one there and then there's one

here and then there's one here as well

where we've had a push away and a

pullback and a retest. So these three

areas here are efficient price moves.

Okay? Demand is created, market pushes

away, market pulls back, demand is

retested, imbalance is filled, creating

efficiency. The only inefficient range

that we have here is this drive higher

because we haven't yet come back to fill

the demand zone that's been created. So

we have efficient efficient efficient

and then an inefficient range to finish

it off. Okay. So as you learned in the

previous class, imbalances or

inefficiencies are used to create good

buying opportunity. We know that if we

want to buy into this market, we don't

want to buy here. We want to buy down

here. So, we would wait for the pull

back in and then we would buy from

there. And that these imbalances can

also be used for targets for trades. So,

let's say the market did give us some

reason for us to sell from here. Well, a

very clear target for that would be this

area of demand because at this point, we

know this is the highest probability

point that the market's going to reverse

and go the other way. So, they're good

for targets and entries and building

clarity around kind of magnet price

areas the market will be drawn through.

But we didn't talk about efficient

ranges and how we can actually utilize

imbalances that have already been

filled. So, when we're looking at this

price movement as a whole, we've

determined that all of this area here is

efficient. There is no imbalance

remaining in any of this price action.

The only imbalance we have is just here

within the current leg of movement. So,

that creates what we call then an

efficient range. The entirety of the

movement that has no imbalance in it is

known as an efficient range. Okay? And

these efficient ranges are valuable in

their own right. They do provide us with

opportunity, but only when you

understand how to use them. Now, there

are two core things to understand about

efficient ranges. Number one is that if

a market returns into an efficient

range, it is not an opportunity to keep

trading in the direction of the trend

that has been moving up to this point.

So the first thing you need to

understand is that once a demand zone

has been hit, it is not relevant again.

If we have this demand for example that

we have marked on and the market comes

down and trades into it for a second

time, well because it's already been

retested, it's already efficient, a

second tab is not relevant to trade off

of in the direction that you were

initially moving. If an efficient demand

zone is hit for a second time, it then

becomes a sign that the market is losing

strength and the more likely outcome

from an opportunity like this is

actually going to be for the market to

break down and trade lower. So the first

point to make is that basically a demand

zone or a supply zone is only good once.

After the first tap, it is not something

we want to focus on. Okay? Because once

the imbalance is filled, there is now no

longer any open orders and that zone has

essentially been used up. So demand and

supply zones are only good for their

first tap. And if they get tapped again

after the imbalance has already been

filled, such as like in the example

we've got drawn on the chart here, as we

say, it's something that is more likely

to go short and sell off than to go

long. So that's the first thing we need

to understand about efficiency is less

so about the broader range as a whole

and more so about individual supply and

demand zones. If a supply or demand has

been retested previously, a second

retest is not good news. It's not

something we want to buy off. It

basically tells us that the market is

losing strength because it's ignoring

the current imbalanced areas and trading

back into already balanced already

efficient zones. So we shouldn't expect

this from efficient demand or supply

zones. we should more so expect this. So

moving away from individual supply and

demand zones then and talking on a

broader perspective of the full

efficient range this red box that we've

drawn on here is a very useful and

important point that I'm going to teach

you now and this is the real core lesson

behind today's class on how to utilize

efficient ranges. So if we have then

these three demand zones, these three

pushes away, these three pullbacks,

these three imbalance fills, this one,

this one and this one, this creates our

efficient range. We then have a final

imbalance and a new demand zone which

creates the inefficiency. And the

standard way to trade this would be to

obviously buy if the market pulled back

to there. But we are trading in a market

of probabilities. And sometimes that

won't happen. What will happen instead

is the market will take this low back

out, trade back into that efficient

demand zone that we've just discussed.

And at this point, things change because

what we've done here is we have broken

into an efficient range. And if we break

into an efficient range, and here's the

big lesson for today, the most likely

outcome is that the market will trade

through the entirety of the efficient

range. So if we push back into an area

that has no imbalance in it, it's very

likely the market will trade all the way

through that entire range to reach into

the next point of imbalance. So if we

had a market, let's say, that had some

demand zone down here and then a bit of

imbalance leading up into the start of

this efficient range. This would then

create basically a demand zone target

down here and some inefficiency into

here or some imbalance into there. Now

obviously as we know these imbalances

act as magnets for price based off of

what we discussed in the last class. So

therefore if the market breaks into an

imbalanced or a a balanced zone should I

say an efficient range well this now

gives us two pieces of information.

Number one the imbalance the other side

of the range is going to act as a magnet

for price. And number two, because there

is no imbalance and no inefficiency

inside of this efficient range, well

then there is no core reason for the

market to find footing for a reversal

from here. So seeing the market reverse

out of an efficient range is very low

probability. And yes, it will happen on

the rare occasion. But for the most

part, when we do see a break into an

efficient range and when there is no

imbalance left to be filled until the

other side of the range, well then the

most likely outcome, the most common

thing we see is for the market to trade

all of the way through the efficient

range as we have marked just here. So

this gives us valuable information as

you can imagine because we will see

efficient ranges quite often in the

markets. We will see ranges where there

is no imbalance remaining and there's

quite a ways to go before the next

imbalance is clear. And when you

understand this rule of inefficiencies

basically being magnets for price like

this one down here and efficient price

ranges having no logical reason to

reverse the market price. Well, when you

see this first sign, this very first

sign of just a market pushing back into

an efficient range, you basically have

an immediate trade prepped to run the

shore all the way through that range.

And the same goes for buy side ideas as

well. If we have a bearish efficient

range and the market drives above the

previous high and trades into the

efficient range, well, now we understand

given there's no reason for any of these

zones because they've already been

retested to provide reactions and to

provide downside for the market. We

actually have early sighting to an

opportunity here to buy this market all

the way up through the entirety of the

efficient range to trade towards

wherever the next imbalance or

inefficiency may be. So that creates an

opportunity where a trade forms which

would be from here with stops under the

low up to here to take out the high of

the efficient range. Now when the high

of the efficient range is taken we can

see one of two things happen. We can see

a continuation towards an area of supply

or demand or we can see the market

change direction like this and then

trade back down in line with where the

initial trade was running. So it's kind

of what we would call and don't worry if

you don't understand this yet a bit of a

liquidation or a run on liquidity. Okay,

the liquidity around efficient ranges I

basically refer to as range liquidity.

So down here we would have that RL range

liquidity which simply is basically the

final point of the efficient range

before the imbalance is met. All right.

Now don't worry if you don't understand

liquidity yet. Of course we have to get

to it in the boot camp. But in a

nutshell, it essentially refers to a

magnet area of significant money or

orders that basically the market will be

drawn towards and then has a reasonable

probability of creating reactions from.

All right. So when you're trading these

efficient ranges in this manner, the

best place to target, let's say you were

taking a cell from here down to the low

of the efficient range, would not be to

extend it through to where demand and

supply may be. It would just be to take

the profits as soon as you hit that

point at the low of the efficient range.

and then you see if the market wants to

continue or reverse and trade it

accordingly. So they're good for number

one if the market breaks into an

efficient range creating trading

opportunity through the entirety of the

range and number two once that has

occurred and the market sweeps liquidity

or takes out the low or the high of an

efficient range. It provides potential

opportunity for us to flip the market

back in the initial direction and

continue with the larger trend. Okay.

So, what we're going to do now is head

over to the charts and I'll show you an

example on the buy side and the sell

side of how this efficient range can be

used in real time. How we identify them

and then how we trade this format. Okay.

So, first things first, let's identify

where efficient and inefficient ranges

are. Here's how you're going to spot one

in real time. So, taking a look at the

leg of price action from this low

upwards. This is going to be the low

that we use to the high. We basically

have got a little variation of efficient

and inefficient price action. Okay. The

first thing we're going to do to

identify where this efficiency and

inefficiency is is plot out the demand

zones and we'll see which ones are met

and which ones are not. So, we have this

last candle before an impulsive move

away. That's going to be demand zone

number one. Put these on just to make

them clearer. Then we have the next zone

which really is going to be this

sideways candle before the impulse away.

This one as you can see has been

retested here. So that creates

efficiency. Then we have another demand

zone just here after the next impulse

just before a new impulse of away. And

then again we have got here efficiency.

So the markets come back in and tap this

zone. Then we have another impulse

before the impulse. We have another

demand zone. That's going to be just

here. And again this one has been

retested. Now the next movements up.

We've got this little zone just here.

This one didn't really create a giant

impulse, but regardless, it's been

filled. And then we have this demand

just here. So that is basically going to

indicate the efficient and inefficient

ranges. There is an imbalance or an

inefficiency here. So basically just for

uh avoiding confusion, imbalance and

inefficiency are the same thing. You

could say a balanced range or an

efficient range. They're the same thing.

I don't say balanced range also uh

efficient. So just be aware an

inefficiency is imbalance. Efficiency is

a point with no imbalance. All right. So

we cannot identify any imbalance in this

market between this low and basically

this zone here which creates this entire

area as our efficient range. All right,

we'll draw it to the very high. It's

basically going to be all of this price

action here is efficient because there

is no imbalance left inside of this

range. So that is what we classify as a

efficient range. Now beneath that of

course we have a open demand zone and an

imbalance. So that could potentially be

a point that the market would be drawn

to. But what did we just say? Well, we

said we don't want to really target a

demand zone beneath the efficient range.

We want to target just the low of the

range because this is the safest way to

trade returns through these ranges if it

takes place. All right. So that's going

to be our range low or efficient range

low. Of course, if the market was to

break into the efficient range, then

this would become the point that we

would want to target. So, we have our

efficient range marked and we have our

efficient range low marked and then we

have our imbalanced demand zone. So,

this is going to be basically the final

point to hold and continue. And if this

breaks through, then we go short. All

right. So what we would be looking for

in a general trading scenario if we were

to see this in real time first of all

based on supply and demand and standard

imbalances our first opportunity would

be to look for a trade like this. Now

whether we used a confirmation entry or

just a direct buy limit doesn't really

matter. The difference will be whether

you take a loss or not. But what we do

with our trading as you've heard me say

before and as you're probably starting

to see is set everything up in a way

that a losing trade creates a new

opportunity. So we would be looking for

initially this trade to buy from this

demand to take the market higher. But if

this was invalidated, which would mean

the market breaking through this low and

failing the demand, well, that would

actually set us up for a new winning

trade because what it would do is open

up this efficient range. All right. So

what we're going to do now is see how

the market goes. We may have for

example, let's take a look uh buy an

opportunity on here, stop beneath the

low, targets to the high. But what we

actually see is the market takes that

level out. What this does in itself

though is create a new opportunity for

us to sell through the efficient range

because we now have the understanding

that this efficient range has been

pushed into. Right now, all of this can

be seen as an efficient range. And

because there's no imbalance points for

the market to reverse from, because

there's nothing in here that actually

will act as support or wait for price to

reverse back to the upside, we should

just be looking for a direct selling

opportunity through towards what we have

marked as that efficient range low. So

the first way that we trade this is as

soon as we see the market trading into

an efficient area. We are told by the

market directly there is no point here

for us to actually see bullish reversal

until we reach the next point of

imbalance. Until we reach those next

orders, that next pool of money, there

is very low likelihood of any bullish

reversal taking place in here. So what

we should be doing is looking for direct

selling opportunities to bring this

market down. Now, if we see what happens

next in the market, it's exactly that we

have a drive to the downside which

perfectly fills the efficient range low.

So, your trade here would likely be

selling from this supply. Basically,

from that point there, you'd be getting

into the market. Obviously, for this, we

would use um refined opportunity,

refined entries, lower time frames. But

the general trade would look like that.

Okay? You'd be selling down inside the

trend as soon as we see that first break

into an efficient range and capitalizing

on the movement from here all the way

through the range to the point of range

liquidity which will be the low or the

high of the efficient range. In this

case for a bullish trend it's obviously

going to be the range low because if we

break into that efficient range we shift

from bullish to bearish until this range

is filled. So now take a look at this.

As we said what can happen a lot of

times is once an efficient range low has

been taken out we see pretty sharp

reversals. Now in this case the market

comes down a little bit further but then

after sweeping the low we see a push

into new highs. Okay? So just because we

see this leg of downward price action

doesn't mean that this is going to open

a new leg of price action and new

continued downside because a lot of the

times what we're doing is just coming to

sweep that liquidity. Essentially what

we've got if we break this down is two

points of support for buyers. So we see

throughout this trend at this point at

this point and at this point and at this

point that buyers are clearly in control

and they are pushing the market up every

time the market retests an area of

demand. So the buyers here are really

taking on in strong numbers those

discount price areas to put new orders

into the market and to accelerate the

buying control in the market. Now

obviously then this zone here is

basically the final point where that may

happen again. So obviously the initial

thing to do, the correct thing to do

here would be to look for buyers

initially because you'd be looking for a

continuation. You'd be anticipating a

continuation of the buying pressure

we've seen so far. So you'll be seeing

this is a point of support where buyers

can take on a massive number of buyers

from a discount price area once again.

But they might not do that. Okay? And if

they don't and we don't get enough

buying coming in at this level, well

then there is no point of support

through the efficient range because all

of the imbalances are filled. However,

with the imbalance we have down here at

the low and with the liquidity that's

going to be sitting here, this

essentially acts as the next point of

support. Okay, liquidity is just money

and orders. All right, so if this first

point of support fails, this one here

that we've just marked as this did, this

can still be a bullish market overall.

So, it can be net bullish and that would

lead to price appreciation. But if we

want to see that price appreciation, we

need to get into a discount price level

that's more significant than the one

that we failed at, which was the one up

here. Which means generally coming down

all the way through the efficient range

to create basically or reach a new area

of discount price action. When we get

into here, the market is so discounted

that we will see that large influx of

buying take place and a continuation

back to where we initially were going.

So when we see one of these efficient

range entries, when we see one of these

demand zone fails that drives us into an

efficient range, it's not always going

to be a bearish reversal situation in a

trade like this. It's more so just

buyers saying, "We are not happy with

this price. We would like a better

price." And when the market reaches a

significantly better price, taking out

this range, we then see a big influx of

buying again, which creates the drive

higher. Okay, so that is how you

identify efficient ranges. And that's a

perfect example of how it works when you

just jump onto the charts and see these

efficient ranges breaking in real time.

So if the market breaks into an

efficiency, well then that is the point

where you would like to go short through

the range and then flip that bias again

when you reach the range low. And as

we've said, we'll find an example just

now. This works exactly the same way for

a market that is selling off. Okay, if

we break a high driving us into an

efficient bearish range, we are likely

to trade all the way through that range.

Take out the high and then that's the

point where we may potentially shift

into a bearish bias. Just a short

interruption. What you're learning here

about technicals is absolutely necessary

to be a good trader. But technicals

alone are not sufficient to get you to

where you want to go. Most traders don't

get stuck because of what they see on

the charts. They get stuck because of

habits, risk behavior, decision-making

under pressure, and self-sabotage

patterns that form off of the charts.

These things simply don't show up in

technical analysis. So, I've created a

class. It's 15 minutes. It's short. It's

sweet. It gets to the point to help you

to understand what it is that's holding

you back from success away from the

charts themselves. The link for that is

in the description. You should watch it

after this class. Don't jump ship now.

This class is important, but when it's

done, head over there, join that. It's

completely free. watch that class and

it's going to change the way you think

about trading. So with that said, let's

get back to the boot camp. All right, so

we're looking at an example now where

the market is moving down. We're going

to do the same thing again. We have the

high of our range basically up here.

Okay, so that's going to be the range

high. The range low is down here. And

then if we take a look at the supply and

demand within this, we have got first of

all a supply zone here. Efficient,

right? Because it's been retested. Then

we have the zone here which going to be

this blue candle as we do extended to

the high of the wick. Again, this is

efficient. This zone here has been

retested. So that's efficient. So it's

not a sneaky little zone we need to be

aware of. We have this area again

efficient before the impulse. So

basically we have a full efficient range

here. Right? So if we were to basically

factor this as an efficient range, we

then understand if the market trades

above this high here that would drive us

into the efficient range again.

Therefore, the logical move to do would

be we break into there buy through the

entirety of the efficient range and then

when we take this high that is when we

would shift into the idea of selling

because the efficient range would be

filled. All right. So, we see this

essentially as a big area for the market

to trade all the way through if we get

over that high. Now, of course, without

the benefit of hindsight, the initial

movement would be to look for short from

the supply here. So, you may be looking

at selling from there. But when we start

to see the market shifting this way like

so around this point when we break over

the high any selling would be basically

invalidated at this point and the market

bias would shift to bullish which means

we would look for the buy from this

point through to there. Okay. So let's

see how this goes. We get a pullback

retest of this demand zone here and then

a trade higher. So this one we actually

get a little bit of insight into where

the trade would come from as well which

for this case would be as you can see we

have this imbalanced demand. The market

trades in, taps in with a wick, and then

we get this bullish run. So, you'd have

a trade pretty much from here through to

there. And again, as you see, this

doesn't shift the bias. Sometimes it

will, but it didn't in this example. It

didn't in the previous in the majority

it won't. As soon as we took this high,

the market reverses and actually drives

back to the downside. Okay. So, again,

these efficient range uh well, when we

break into an efficient range and trade

through it, it's not always a market

reversal trade. It's a short-term trade

towards the next point of support or

resistance from a market. Okay, not in

the traditional sense, but where we're

going to start seeing resistance from

sellers and buying pressure kind of

exhaust. So, we saw that efficient range

traded through and then as soon as we

take that high, we reach that next point

of liquidity. We see that market

reversal brings us down to where we are

provides the buying opportunity and then

potential for selling opportunities off

the back of that as well. So to recap

what we've discussed so far in this

class, we find efficient ranges by

identifying areas where consistent

demand zones have been created, pushed

away, pulled back and retested or supply

zones for selling examples which creates

an area where there is no support or

resistance for a market. We then

identify the final point of imbalance

such as this demand zone and we

understand that if the market stays

above it, it's probable to trade higher.

But if we break below and invalidate

that movement and invalidate that

demand, the highly probable next outcome

for this market is to trade all the way

through the efficient range towards the

next point of imbalance, which as you

can see in this case, it's going to be

down here. All right. So, understanding

this about efficient ranges is

incredibly useful. Now that you've seen

this, you're going to understand this

when you're trading in the markets

yourself. And when you see an efficient

range like this broken into, you won't

be worrying about where do I buy from at

this point? The market's broken this

low. Should I continue buying? Should I

look at this zone again? This zone? No.

You wait for the full zone to be filled,

which does two things. First of all,

creates a trading opportunity to sell

through the range towards the efficient

range low. And number two, provides

pretty much the prime possible point to

look for a reversal back to the upside

once new support has been met, once

we've actually reached a point where

market participants are seeing this as a

discount price again. Okay. So,

efficient ranges, understanding how to

utilize these is just as valuable as

understanding imbalances as discussed in

the previous class. Now, in this lesson,

we did talk a few times about a topic

called liquidity. And don't worry, we're

getting to liquidity soon and we're

going to spend a fair bit of time on it

because it's a pretty complex concept

with a few different things that you

need to learn and understand about it.

But, we'll be getting there soon. And

for now, this is all you need to know

about efficient ranges. It's a simple

one, but it's an incredibly valuable one

at that. So, I hope you enjoyed this

class. Hit the link in the description

to watch the trading diagnosis class.

It's only 15 minutes. Going to show you

why you're not winning off the charts.

And then uh I'll see you in the next

episode of the boot