All language subtitles for Lesson 3.6 - Reinforcing Orderblock Theory [Vacuum Blocks]

We're looking at teaching 3.6.

Reinforcing order block theory.

We're dealing specifically
with the vacuum block.

Okay.

A bullish vacuum block is a gap
that's created in price action.

As a result of a volatility event,
the gap forms by a vacuum of liquidity

directly related to an event non-farm
payroll can create a vacuum block

or in futures, a session open can.

Okay.

On the left-hand side here, we have a
crude depiction of price action, a short

term Lowe's formed, and this can be if
we're trading a futures contracts, where

they have a session opens and closes where
there's no trading, or if we see a star.

It could be a, um, intraday in
the C B S and P 500, or it could

be just any old Forex pair.

And there may be a large volatility
injection coming in form of

the economic calendar release.

It could be not for payroll.

It could be a FMC related event.

Um, anything along the lines of
interest rates, or it could be a

geopolitical event that was not.

Uh, foreseen, maybe not even on the
economic calendar, say a terrorist attack,

something of that, like something of
that nature at any rate, we're going

to assume that we see the market gap.

Okay.

When we see that gap, uh, the, the
first assumption is on the part of

most traders is, uh, it's things
gonna keep going higher right away.

And sometimes it will, but we're
going to be looking at the vacuum

block and the scope that we can
use it to get in sync with what may

be underlying in the marketplace.

Um, the short-term load it's
formed here in our diagram.

If we have traded lower
prior to that swing low.

In this case, this outline that
I'm giving you here would be

a little bit more probable.

Um, if the market had been rallying
for a number of days or weeks, or

it's been in a prolonged uptrend,
and then it does this, this could

potentially be at an exhaustion gap.

And exhaustion gap is typically, uh,
a graphic depiction of capitulation.

And capitulations basically like
the last bit of a momentum in an

underlying trend or direction.

But assuming that we have been in a down
correction and upward market, or if we've

been in a down market and we expect the
market to give some kind of a bullish

news, or we're expecting the market to
reach for liquidity above where we're

currently trading it and the New Zealand.

Releases and we get this gap up.

Uh, what we're essentially saying is this,
if we gap up away from a market, that's

in a discount and we had some retracement,
but we are expecting higher prices.

Nonetheless, we see this gap like this.

The first thing I want you to start
thinking about is when we see that,

that space in between the two camps.

It's important.

Now, while on our charts,
there's going to be a vacuum.

If you will, of trading, there's no
trades being made between the previous

candles close and the next candles
opening to that gap, it could be large.

And sometimes, um, for instance,
non-farm payroll, it can get sometimes

30, 50, 60 pips from where it was
trading rate before the numbers release.

Now all of a sudden they
do a quick repressed.

At the central bank level, because
that happens, there's absolutely

no way for any trader to execute.

There's no trade between
those two price points.

So what it does, it creates
a vacuum of liquidity.

Most times, I'm not going to give you
a specific percentage because there's

no real accurate way of depicting that
because it says we're going to classify

as a high probability that the market will
want to come back and try to close that.

There are some points that I
want you to take special notice

of as we go through this.

But for the most part is we're going
to anticipate that mood to fill in.

But first we have to identify
that gap in a specific manner,

because they're looking at the gap.

We come to the realization
again, that there's no trades

being made in this range.

So if there's no trades in that range,
what's the market actually done.

Gapped up through it and started trading
at a higher price on a new candle when it

opened up and it traded a little bit more.

And now we have to discern whether or
not the market is going to continue

and run away from that price level
and leave the gap opening, or will it

trade back down and closing that range.

And if it doesn't close in the
range, how much can we reasonably

expect for that range to close in
and still look for a potential buyer?

Inside that range.

We have a vacuum block and
that means we've blocked out

a reference point in time.

And we have to look at it like
this because even though there's

new candle stake, our bar on our.

Price did in fact have
a parameter before, and

we can look at it as this handle or range.

Okay.

And again, we're, we're interpreting it.

We're visualizing it.

If you will.

There's an, there's an
absence of liquidity.

There.

There's an absence of price being
traded there, but we're defining it

as the high and the low of the game.

Now, if we looked at it in terms
of a candle or a bar, it would be

just the same as anything else.

We would expect to see a mean
threshold, an opening, and a close.

So if we see that, okay, we're just going
to treat it just like any other candle.

So let's take a look at it now with
the gap in mind and assume for a

moment we start seeing price trading.

Our expectations are one of two scenarios.

If we're bullish, we're looking
for, is there any bullish order

block or down candle that would
cause the gap to not want to fill

entirely as price trades down?

We see that actually occurring here.

We have the down candle right
before the move and it's two

consecutive down candles.

The bullet or buck would begin at the
higher of the tube down candles prior

to the gap up and this price trade
into that candle, we would reasonably

expect a potential bounce there
and leave that little gap opening.

It's still intact, but this
could potentially be a buy.

Now, if you're looking for this to occur,
you'd have to see immediate feedback.

If you're going to be buying
there, can you take the risk that's

associated with entering here?

And using a stock below
that lowest down candle.

So your range in terms of managing
your risk and defining the risk would

be putting those two reference points.

If price was trading lower.

And we get down to that Porter block area
and we don't want to buy there and say,

we have a little bit stronger conviction
that we'll probably trade back down

into the last up candle before the gap.

The reasons I would expect to see that
is if it was time of day sensitive.

In other words, if we had a lot of a
left in the day where we can trade.

In other words, if it's just now
beginning of New York, Uh, New York would

probably come down and close that gap in.

If it was gapped up late in
the afternoon, chances are, it

probably would leave the gap open.

But if it price trades down
into this point here and Tom

day permits more trading.

In other words, if it's still early New
York session, or it may be even a London.

I think it creates that gap, uh, highly
unlikely that it does it in London.

Usually it's a trading event that takes
place, but a gap like this usually occurs

in the New York session or late New York
with FLMC, but generally at eight 30 news

embargo lifts, there is usually markets
that cause a gap like this to occur.

So we're going to assume that it's
still early in New York, uh, eight 30

would be relatively decent in terms of
allowing more time for the day to unfold.

Forget the bullet shore block
level here and anticipate this

small little area still to form.

But if we are later in, for instance,
let's say it's the 10 o'clock or 11

o'clock hour, and we could this gap.

We may end up seen this portion of
the gap to remain open, and that would

present us a fair value gap for a later.

We would look for price to a later
time, come back and close that in,

but leave it open during this specific
trading day again, that would begin,

uh, our thought process like that.

If the gap occurs late, New York opening
or after 10 o'clock in the morning to

11 o'clock in the morning, the news
events that usually release there.

So we have two reference points.

The opening of the gap up candle
and the close of the candle

rate before the gap forms.

And again, as price trades, lower,
lower, boom, it hits that and we would

see a complete closure of the gap.

That would be a full
return on a vacuum block.

No words, everything is
completely been closed.

This whole range.

Here is 100% filled.

This is in effect,
perfect delivery of price.

Once it's done this, this is
completely balanced out now.

And if we were expecting higher prices, if
just liquidity that hasn't been sought out

after, uh, prior to that, uh, highest tie
that formed on the gap, opening and back

bullish liquidity above the marketplace
would now allow price to drive higher.

So this could be a buy.

And now notice buying here and using a
stop loss below the lowest low, your risk

is more defined for more leverage, but
still having the same potential parameters

for exposure, percentage of your equity.

If price was to trade
down and hit that level.

And we start to see a rally up.

We don't want to see price ever come
back down below the level that would

have caused it to close the gap.

When we see this, we're looking for
the upkeep and it formed at the gap.

We want to see that low
me cleanly broke through.

We don't want to see it.

I hesitate here because otherwise
that will be a bear shorter block.

Right.

So what we're looking for
is we're anticipating.

Oh, this move to drive right
on through that last up candle.

And when it got dark, because now
price has already been delivered

efficiently, that vacuum of liquidity
it's been completely balanced out.

We traded down with the two
down candles to close the gap.

Now we've had a bullish move up.

So what has happened?

Price has been delivered on the downside.

To close the gap and now it's trading up.

There's no reason for
price to come back down.

It's closed in and filled
in that vacuum of liquidity.

There's no reason for it to come back
down and trade below the last point of

reference before the gap, which would
be the close of the first up candle.

So when that closes in that range,
the vacuum block is completely

filled in and now prices permitted
to trade bullishly higher.

And once it takes out that high,
we would reduce it and expect

to see price and continually up.

So in summary, a vacuum block is
nothing more than a breakaway gap.

What I teach with the breakaway gap is
because it creates a vacuum of liquidity.

You have to understand not
all gaps fill completely.

And why do we anticipate the gap sometimes
not filling if there's a bullish order

block in this case, if we're both.

Mainly kept up the price may only come
down to a bullish or block that would

be inside that gap in pricing just
comes to that level and then stops

trading the lower in any rallies,
higher leaving a small gap, which would

be classified as a fair value gap.

And we could use that at a future
time when price is now trading

lower, and we would look for price
to come down and close that gap in.

But if it stays open, we would label
that while we're bullish as a breakaway.

And it would show willingness and strength
to get in there and expect higher prices.

So for expecting bullish prices
and price closes in that gap, it's

filled in that vacuum of liquidity.

It gaps up.

We close in the gap with price
delivery on the downside price trades.

Bullishly up through it.

So now we've had both passes
in price and delivery.

We've had it sell down.

And rally up.

So there's been no reason after
that point to see price go down

below that first off candles close.

If it does, the chain is probably
going to be suspect and you would

want to look to take some profits.

If you've seen a move like this,
take something off, but if it starts

to correct and go lower, you want
to take the complete trade off

because there's no reason for it
to come back down into that area.

Once it's already closed the gap.

So then this is a Bush back in blond.

The reverse would be seen if we had
gap lower and we would wait for that

gap to fill in on some up candles.

And then we would go short in the
same venue that we would do here.

Looking for long system.