Why Imbalances Matter: The Science Behind FVG & Liquidity Void Fills

1. What Is an Imbalance?

Imbalance = when buying and selling are NOT balanced.

In normal trading:

• Buyers and sellers are roughly matched.

• Price moves smoothly: 100 → 101 → 102 → 103…

In an imbalance:

• One side dominates (buyers or sellers).

• Price “jumps” too quickly: 100 → 103 → 106, skipping the middle prices.

• Very little trading happens at 101–102–104–105.

Think of it like this:

“Price moved so fast that it didn’t get to spend time at some prices.”

Those “skipped” or thinly traded areas are called imbalances.

2. Real-Life Example: Shop / Market

Imagine a shop sells rice:

• Usual price: 100–105

• People buy slowly, a few bags at a time.

One day:

• A restaurant owner walks in and says:“I’ll buy everything you have NOW.”

• The shop instantly raises price from 100 → 120 because stock is disappearing.

• No one really gets a chance to buy at 105–110–115.

What happened?

• Demand greatly outweighed supply.

• Price jumped too fast.

• Middle prices never got traded = imbalance.

Later, as things calm down:

• The shop may bring the price back into 105–110 to find “fair value.”

• This “coming back” is like price filling imbalance on charts.

3. Why Does the Market Often Come Back to Fill Imbalances?

Markets seek balance and fair value.

When price jumps too fast:

• Buyers and sellers did not properly agree in that zone.

• The market “owes” some trading there.

So price often returns to:

• Allow more buyers/sellers to trade there

• Test if the area is accepted or rejected

In the rice example:

• Price jumped from 100 → 120

• 105–110 was never tested

• Later, the shop may drop price back into that zone to see if people buy

On charts, this usually looks like:

1. A strong move creates an imbalance

2. Price returns into the “gap”

3. Price reacts (bounces or reverses)

4. What Is a Fair Value Gap (FVG)?

A Fair Value Gap (FVG) is a specific imbalance used in ICT/smart money trading.

Simple definition:FVG = 3-candle pattern where the middle candle moves so fast that Candle 1 and Candle 3 do not overlap. For detailed Fair Value Gap Guide visit this link : Fair Value gap explained

Example (bullish FVG):

The gap between:

• Candle 1 high

• Candle 3 low

is the FVG zone.

It shows:

• Price “teleported” from around 3100 → above 3175 with little trading

• Price often returns to the gap before continuing in the same direction

So an FVG is basically a missing trading area between three candles.

5. Liquidity Void (LV)

A Liquidity Void forms when price moves extremely fast in one direction because large institutions place massive orders.

This causes:

• No pullbacks

• Long candles

• No wicks

• Very few orders filled

This creates an “empty” area on the chart: a liquidity void.

Why It Happens

Institutions sweep liquidity (stops) and then aggressively push price to the next target.This rapid move creates a thin or empty region = liquidity void.

6. What Does “Inefficiency” Mean in Price Action?

Inefficiency = price did not move smoothly or fairly.

In an efficient market:

• Price moves gradually

• Most price levels get traded

• Buy and sell flows are more balanced

In an inefficient move:

• One side dominated strongly

• Price skipped many levels

• Very little back-and-forth trading happened

Imbalances, FVGs, and liquidity voids = price inefficiencies. Markets often return to these areas to “fix” or normalize them.

7. How Smart Money Traders Use Imbalances

“Smart money” (institutions, hedge funds, banks) often create imbalances because their orders are huge.

When they push price:

• They eat through the order book

• Price jumps due to lack of opposite orders

• Imbalance forms

Later, these same zones become useful:

• They may have leftover unfilled orders

• They may want to add positions if price returns

• They watch these zones for continuation or reversal setups

How ICT/smart money traders use them:

• Bullish FVGs (below price) → potential support/demand

• Bearish FVGs (above price) → potential resistance/supply

Traders wait for:

1. Price to return into imbalance

2. Confirmation (wick, rejection, engulfing)

3. Entry in the direction of higher-timeframe bias

8. Imbalances as Magnets for Price

Imbalances often behave like magnets.

• Price above a bullish FVG→ It may retrace into that FVG before continuing up.

• Price below a bearish FVG→ It may retrace upward into that FVG before continuing down.

Why?

• Unfinished business

• Thin or skipped trading

• Resting liquidity

• Institutional footprints

Traders often say:“Price will likely come back and fill the imbalance before the next big move.”

9. Summary

• Imbalance = price moved too fast, skipping levels

• Shows as:

  • Large candles

  • Gaps between candles (FVGs)

  • Thin/low-volume areas (liquidity voids)

• FVG = 3-candle gap caused by a rapid move

• Markets often return to:

  • Fill the missing trades

  • Establish fair value

  • Let institutions complete orders

• Smart money uses imbalances for entries, continuation setups, and understanding where institutions acted

• Imbalances can act like magnets, pulling price back

• Beginners should:

  • Always use imbalances with trend, S/R, confirmation

  • Avoid over-leveraging

  • Remember: not all imbalances must fill

This content is from Peni2Dollarz and is for educational purposes only — Not Financial Advice.Always do your own research.