Hi,
Some people (e.g. Chris Lori) say that price pushes towards the least liquid side of the market. On the face of it this seems like a reasonable claim. Other people say that liquidity is a magnet for price due to market manipulation or whatever reason. But let's go with "price pushes towards the least liquid side" for now.
We will say that a liquidity gap occurs when price moves away strongly after a short period of consolidation. If this is a weak definition please let me know. I went to the charts looking for an example and found one per attachment with two gaps stacked on each other.
As I understand it these strong moves are formed for example when an order is pushed into the market that is large relative to the normal order flow at that time. The move up as in this example eats up all the sell orders from 1.263 to 1.272 ish. So all of the old selling liquidity in that area is gone and it's unlikely that a lot of new selling liquidity will be put into the gap after the move. But there's still an unknown amount of unfilled buy orders in the gap (right?). So in order for price to move down and fill the gap it needs to grind through all of these unfilled buy orders. Thus in the gap we have at least some buyers pushing price up and no sellers to push price down, making it unlikely that so called gaps get filled.
Please explain to me why this thought process is broken
Thanks.
Some people (e.g. Chris Lori) say that price pushes towards the least liquid side of the market. On the face of it this seems like a reasonable claim. Other people say that liquidity is a magnet for price due to market manipulation or whatever reason. But let's go with "price pushes towards the least liquid side" for now.
We will say that a liquidity gap occurs when price moves away strongly after a short period of consolidation. If this is a weak definition please let me know. I went to the charts looking for an example and found one per attachment with two gaps stacked on each other.
As I understand it these strong moves are formed for example when an order is pushed into the market that is large relative to the normal order flow at that time. The move up as in this example eats up all the sell orders from 1.263 to 1.272 ish. So all of the old selling liquidity in that area is gone and it's unlikely that a lot of new selling liquidity will be put into the gap after the move. But there's still an unknown amount of unfilled buy orders in the gap (right?). So in order for price to move down and fill the gap it needs to grind through all of these unfilled buy orders. Thus in the gap we have at least some buyers pushing price up and no sellers to push price down, making it unlikely that so called gaps get filled.
Please explain to me why this thought process is broken
Thanks.
