Imbalances

At one price inside a footprint, one side's aggression dwarfs the other's. Simple enough — except that the comparison is diagonal, not horizontal, and almost every explanation of this gets that wrong. The reason is worth two minutes.

Mak · 3 min read · Stage 7, article 8 of 9

Why diagonal

Think about what the two columns of a footprint actually record. At a given price, the ask column counts buyers who crossed upwards into it. The bid column counts sellers who crossed downwards into it.

Those two things did not happen against each other. When the market is sitting with a bid at one price and an offer one tick above, a buyer lifting that offer and a seller hitting that bid are the two sides of the same spread — and on a footprint they are written one level apart.

Diagram 1. The diagonal pairs the aggression that met the same resting orders. Horizontal comparison pairs two unrelated moments and produces a number that means nothing.

The ratio is yours

A difference becomes an «imbalance» when one side exceeds the other by a multiple you set. Three to one and four to one are the usual defaults, and that is all they are: defaults.

Which has a consequence worth stating plainly, because it is the same one as the confluence article: lower the ratio and you find more imbalances. The chart did not change. Two traders looking at the same market with different settings are looking at different pictures, and neither is reading the market wrongly — they are reading different questions.

The bar type matters too. An imbalance inside a five-minute bar and inside a 1,000-volume bar are measuring different windows of time, which is the article on candle types arriving with consequences for the third time.

Stacked imbalances

Three or more in a row, on the same side, at consecutive prices. They are worth noticing for a reason that is purely descriptive: price moved through that whole area with one side aggressive and the other barely present.

The common claim is that such a zone will act as support or resistance if price returns. The honest version keeps the reasoning and drops the certainty:

People bought aggressively through that area. If price comes back, some of them may defend it, and some of them may be getting out. Both produce activity, and only one of them holds the level.

Which is exactly why an untested area is worth marking and not worth predicting. What you have is a place where something happened, and this stage has spent eight articles building the tools to read what happens when price gets back there.

The case that inverts everything

A very large imbalance at the extreme of a move, after which price goes nowhere.

Read as momentum, that looks like the strongest buying of the day. Read with the previous article in hand, it is the opposite: an enormous amount of aggressive buying that failed to move price is the definition of absorption — and those buyers are now holding a position that has not worked.

The same numbers, two opposite meanings, separated only by what price did next. That is the single most important habit this stage can leave you with: never read an order flow number without reading what price did with it.