Welcome to episode three of Trade School. This is going to be one of the most important videos because we're building the foundation off of what we actually trade. So, we talked last video about liquidity and kind of the importance of, you know, the foundation of why that's so important in our trading. But in this video, we're going to dive a little bit further and talk about draw on liquidity when we're looking at, you know, the reasons why the actual market moves and understanding why the market moves, where the market's going, and also start to frame sort of trade ideas from this video. So, there's a couple things we're going to go over. Draw on and liquidity, the four reasons why markets move, fair value gaps to give you the right understanding of the foundation of this actual strategy. So, without further ado, what is the actual reasons why the market moves? Now, there's four reasons why the markets move. Number one, to hunt liquidity, right? We obviously are going to highs and lows to lay areas of liquidity. The second thing that we do is rebalance to fair value gaps. Now, we're going to get in this video about what a fair value gap is. Fair value gaps are also called inefficiencies. So either rebalanced deferred value gaps, rebalanced inefficiencies. The third thing is rebalanced equilibrium. We'll also go into that in this video. And the fourth thing is to generate liquidity. Now the market and the way the algorithm moves is we generate liquidity to then go take that liquidity. And a lot of the foundation of this strategy and what I want you guys to understand is that this is based on logic. When we are focused on building confidence and conviction with this strategy, we must know that this is the logic as to why the market moves. So any trade or any idea that we have in the market needs to have this as the foundation. So with that being said, I want to jump into what a fair value gap is. Now a fair value gap is a three candle formation. And normally for the upside, it looks something like this. So when we have an expansion move, notice this middle candle here, we end up leaving a gap between these three candles. So if we look to the left all the way through, what's actually happening here? Well, this gap is just the body of this candle. So, we're taking the third candle, the top of the wick to the bottom of the third candle wick. And notice this gap is created from just the body of this internal candle here on the third candle. So, what does this normally say? Why is this important? Well, what happens is if one of the reasons why the markets move is to rebalance inefficiencies and not only that, but we use it as an area of support. And a lot of the time the market will rebalance to these inefficiencies and these fair value gaps to then continue back higher towards the upside. So this is an example of a bullish for value gap. Now there's also inverse for value gaps and inverse for value gaps are an idea where we can understand what is the actual order flow. And what I mean by order flow is is the market bullish or is it bearish. So what normally would happen is we can end up breaking through this for gap and then it'll end up acting as an inverse. So we could break through it, come back up, act as resistance and then continue towards if there is a draw on liquidity to the downside. We would end up running through it showing that the market is not bullish and we want to go back higher. If the market is bullish and there's liquidity resting above, the market would pull back, respect this bullish for VI gap and then go higher towards whatever the draw and liquidity is being buy side. So now let's look at an example of what a bearish for gap looks like. So a bearish for gap is basically the same thing. It's a three candle formation to the downside and we end up opening this gap. This is what would be our bearish fair value gap. And again, in the same case scenario here, we would expect price to rebalance to this inefficiency. If we are bearish, we would expect price to reject and go back lower. And if we're bullish, we would want to see this get ran through to the upside and act as an inverse for value gap. So now that we kind of have a basic understanding of a fair value gap, let's get into some further concepts and actually dive into the charts and and understand number one, how can we use fair value gaps because we use them for entries, which we'll get into in a later video when we dive further into the strategy. But more importantly, we use it to confirm a bias and understand what the draw on liquidity is with liquidity and for value gap. So let's understand what the draw liquidity means. So just looking at a blank chart here, I have buy side and sellside liquidity marked. And when we're trying to figure out where the draw is, basically the draw is just saying where do we think the market is drawing to, right, as a magnet because we know that the market loves to hunt areas of liquidity. And when we can look at use areas of liquidity and fair value gaps to base an opinion, the market's going to give us a better understanding of how we can look to frame a trade. So for example, market comes back down, sellside side gets taken, and now again, what happens after sellside gets taken? We're starting to move back inside the range to possibly now go back to buy side liquidity. Now, why do fair value gaps matter? Well, let's get into a further example. So, what I'm going to do is this is actually where we are in price action right now. So, I'm going to go squ up the chart and I'm going to go pick an area over here and I'm going to run through the exact same thing, but how we can use fair value gaps as well. So, we're at a random place in the chart and I'm going to do a top down analysis. First thing I'm going to do is look at the daily. What's happening here? Well, what I can base is there's a fair value gap to the left of us that we're still holding bullish. Internal sellside liquidity has been taken and there is a bearish daily fair for value gap here. So, what could I possibly expect to see? Well, right now I would want the drawn liquidity to be higher because we just took out sellside liquidity. So, now that sellside liquidity is taken, I would want to see us go back to buy side. Now, we talked about generated liquidity earlier. What does that look like? All of this is generated liquidity, right? Because what are we doing on our way towards the downside? We're generating all of these buy side levels to eventually then get ran. So, what would I need to see here for me to have conviction and confidence that the draw on liquidity first is this high because this is the internal high. This is the first high of this move. And I would want on I would want to see all of this liquidity get rammed. But what do I need to see first for this high to become the draw liquidity? I need to see the daily fair value gap get ran through. Because if we're still bearish, I would expect this to still hold and go back lower. But because sellside has been taking, I'm looking for the reaction and a change in order flow. So I'm looking at that bearish for value gap and I want to see it get ran through to the upside. So we'll see what price does here. So we'd still be waiting. So now boom, first thing daily value gap gets ran through. We're starting to move to the upside. Now that this has happened, I can have confidence in saying that the draw on liquidity is this buy side level. So now this is where I can really look to start framing a trade because on the bigger time frame I have an idea of where price actually wants to go now. So what I'm going to do is I'm going to zoom in and I'm going to say okay you know there's a bullish for value gap right here. Maybe we could see price rebalance to this or maybe we just want to continue back higher. But we know where the market is drawing to. We know we're drawing towards those highs. So market comes back down to this fair value gap. Now this is where I would be looking to take a long. We come back down to the fair value gap. Stop would be at the recent low. Now, we're going to get into further in-d depth more entry models later on in the series, but I just want to show you guys just an example of me picking a random point in the chart and having an idea of what the draw is. Sellside's been taken. We've ran through the daily free value gap. We've now pulled back to an inefficiency, right? What is another reason why market moves? We rebalanced inefficiencies and because the draw on liquidity is higher now, I'm expecting this sphere value gap to hold bullish and go towards buy side. So, let's watch and see how this plays out. You can see we get bought up immediately. We're still waiting and we're still waiting and boom, buy side ends up getting taken. So just by looking and using the differences between liquidity and fair value gaps, we can immediately have an advantage and an edge in the market of understanding where do we actually want to go in the market, right? So having an understanding just by using say, hey, sellside gets taken, we're holding a bullish imbalance on the bigger time frame. If this gets ran through, I know we're going to go to this recent high. Right? So now let's let's continue to watch this. So since that daily for value gap got rammed, I'm still expecting again all of this generated liquidity to be taken. So I'm still expecting price to go higher. Now what could I maybe expect? Well, if there's a bigger time frame for value gap here, we can look to maybe rebalance to it and then continue higher. So I want to zoom out and say, okay, we have a daily for value gap that just opened up and there's also another fair value gap right here, too. So, I'd want to see if price wants to come back down, rebalance into this and look to see price go lower. So, this actually I think I believe was was some sort of news move, but we end up selling all the way back down after the internal sellides level. So, again, at this point, my bias is now completely new. There's new data to the chart. I'm not super bullish. I want to just let the market continue to provide more context because right now we've taken internal buy side again, falling right back inside the range after taking buy side. So, right now, I would want to see and let price do its thing. What do we want to do right now? We're just chopping and again cons continuing to consolidate in this range right now. Now, if this gap that we just ended up creating right here, we end up gapping down to the downside. Market opens from Friday to Sunday. This is the new week opening gap. We run through this. What would I maybe expect? Possibly back to the internal buy side. Internal buy side here gets taken. Start to fall back inside the range. But again, on the bigger time frame, keep in mind we're still holding that daily inverse for value gap that we ran. So, we're still looking to see buy side get taken here. But again, right now, all of this is just consolidation. So, we end up selling all the way back. Again, consolidation market is super choppy. It's super unclear. Not the point where we should be putting on a lot of trades unless it's more clear. So, we continue to fall back inside the range. So, now let's take a look at where we are right now in price. Zoom back out and let's build a new bias from this. So, looking at the 4 hour, this is now kind of what I'm seeing in price. There's a 4 hour for value gap that's bearish to the left of us. There's sellside side that was generated below, sellside here, sellside here, and we also just took internal buy side. So, what just by looking at this chart, what would I say my bias is? I would say I'm most likely bearish. I want to see price continue back lower. So, what would I be looking for here? An internal model. Well, we already rebalanced back to this value gap. So, I could already be looking to take a short on the bigger time frame from this for gap, looking to see price go lower. So, right now, I would have a bias that I want to see price draw towards these lows. Now, if I'm looking for an internal trade, this is what I would want to see. So, I want to see price do exactly what it's doing right now, pushing back into this for VI gap, these internal highs are getting taken and I want to see an internal model play out here. So, I'm waiting. I'm waiting. I'm waiting. I'm not fully bearish yet. I'm not fully bearish yet. I'm waiting. I'm waiting. I'm waiting. And right now, again, there's still no trade. If we want to break through this, there's still no trade for me because there's no internal model. Right? We don't get this placement through the low, which we'll get into another video, which is the change in the state. Right now, we just want to focus on drawing liquidity. So, right now, I'm still waiting. I'm still waiting and we fall back inside the range. So what's happening here? When we zoom out, we end up breaking through this for gap, trying to act as an inverse. So I want to see now, do we want to hold this for value gap and hold bullish? Cuz since we broke through this for value gap, I don't know if we want to respect this or not. I just want to let price do its thing and give me confirmation. Our goal as traders is not to is not to try to predict, it's to react. And right now there's no there's not a lot of clarity in the market because we're kind of continuing to chop and just continue to build price action. I need to see manipulation. I need to see buy side get taken or sell side for me to have more conviction. So we break through it again. Continuing to just generate liquidity here. Now what ends up happening here? Well, if we look at the lower time frame, sell side ends up getting taken. We still have a lot of generated liquidity resting above. And again, notice what's happening here. This 15-minute fair value gap gets ran through to the upside. So, we're having a shift in order flow. What would I want to see? I would want to see this act as an inverse for gap. So, we continue and expect the draw in liquidity to be that buy side. So, we gap up and there we go. Buy side gets taken, sellside gets taken, for value gap gets a ran through and we continue to work towards buy side liquidity, right? And I'm having an understanding of what the draw is. Same with this 1 hour for value gap gets ran through and we look right back to go to buy side. So, now now that buy side's taken, what do I want to see? I want to see a fair value gap get rain through to the downside and fall us back inside the range. Now, if we want to continue to expand, that's fine. But there's no trade for me here. So, now we're starting to fall back inside the range. I want to look at the bigger time frame and let this continue to play out. So, now what's happening here? Well, one thing I want to look for is there is there a fair value gap to the left of me that we are respecting? Now, there's not a super clear inefficiency to left of us. There is a 4hour for value gap right here that we didn't yet tap into. But at this point in time, because we're displacing so much lower, I'd want to see price look to respect these for VI gaps that are bearish and look to go lower. So we end up selling all the way back to sell side after price rebalancing. And at this point in time, I'd just most likely expect price to continue lower. Now, this is kind of a basic bullish example, another so just drawn out of understanding like how can we can base the draw on liquidity, right? We know that the market draws towards buy side and sell side liquidity. And if we're looking at a basic chart, right, we know that equal highs is normally or equal lows an area in which the price is going to draw to. So in this example, sell side gets taken and let's say that there's an inefficiency that gets ran through right here to the downside. What do we expect the draw to be? Most likely to work our way back towards buy side. It's the same thing with a bearish example. Again, in a bearish example here, if gets ran through to the downside, buy side has been taken, internal buy's been taken. What do we expect here? Price most likely pull back to the initial level. And then we look to go back towards sell side, right? And we can understand the draw based off of once buying taken changing the state or inverse for VI gap to the downside. We look to go to sellside side liquidity. So I'm going to pick another point in the charts and we'll do the exact same thing again. So looking at the daily time frame, this is kind of what I would look at. We have a daily for gap to the left of us that's acting bearish. Internal high just got taken. I would want to see this candle flip to the downside and look to see us rebalance price back lower. So now zooming into the 1 hour. There's not a lot of price action here yet to really give me a lot of clarity yet. So there we go. We start to displace back inside the range. And I just want to let price do its thing here. We're still building. We're still building again. I need to see clear internal buy side or internal sellside getting taken. Right. So right here internal buy side gets taken. What would I want to see? Continuation lower to internal sellside liquidity. So internal sellside gets taken. Right? This is possible trade opportunity. Price pulls back. Buy side gets taken. Understand that the draw is lower. Boom. Low gets hit. Right. So, right now, we're just testing our eye with the draw on liquidity. Where do I think the market's going right now? I'd be patient. Waiting. I'm waiting. I'm waiting. I'm waiting. Just letting price do its thing. Right now, we're just placing back lower. Zoom back out. We'll kind of get a better understanding of what we're doing right now. So, just by looking at this chart now, I'm looking at the lack of displacement to the downside, right? We have, oh, low gets taken, but we very, you know, don't break through it. low gets taken, we don't break through it. So, every time we keep sweeping, now we just took this last low and what's happened here? We've now displaced through all of these highs. So, what would I most likely expect here? I would most likely expect this fair value gap to hold bullish and work our way towards buy side liquidity. Let's look at an example when we kind of need more more information, right? Cuz if we're looking at this chart, we can say, okay, well, buy side just got taken on the bigger time frame. There's a fair value gap above us, you know, that we're rejecting off of. We just place back inside the range, but now internal liquidity has just been taken and there's also a bullish fair value gap to the left of us. What needs to happen for me to really get a better understanding of what price wants to do? Cuz for example, I can look at this and say, well, there's a bearish fair value gap here. I would want to see price reject this and then go back lower because buy side's already been taken, right? And I would maybe possibly see an example of, let me draw this out, and I could possibly see this look to reject and go back lower. Now, how do I know that's what's going to happen? I don't I need to wait for the market to give me the information and the reaction of that. So what's going to tell me that? If this fair value gap holds or not. So what I'm looking for is I would be very very bullish if we break through it. So I'm waiting. I'm waiting. I'm waiting. Boom. We break through this F value gap. Meaning what? The draw on liquidity is higher. Like we just talked about sell side liquidity gets taken. This F value gap gets ran through to the upside. So I would expect the draw on liquidity to be buy side. So let's see what happens here cuz now we've closed back above it. And there we go. We continue to run back higher. Buy side gets taken. And then what? Boom. Fall back inside the range to what? Go take sell side liquidity. So draw on liquidity is one of the most important things to just understand and have an idea where is the market drawing to. And the more that you'll watch price action and the more that you can look at what's being respected, what's being disrespected is going to give you a better understanding of where is the market actually drawing to. Once you have an idea of where the market is drawing to, then you look to zoom in and take a trade, aligning those two biases. So, in the next video, we're going to go further in depth on actual what the the model is to look to actually trade. We'll get into changing the state. We'll get into my entry SMT, stuff like that, and dive further into it. But what I want you guys to get out of this video and start to dive into on your charts is looking at understanding what the draw liquidity is. just go back test, go back in or in later charts and also trade right now on a paper trade account and just test what you are looking for in the market. Like you want to build the confidence of being able to just look at and find the draw liquidity just by looking at a chart. So for example, if I'm looking at this chart right now of where we are in price, sell side's been taken. What did we also just do? We just ran this 4hour for value gap to the upside. So what would I just say? I'm pretty bullish right now. I would want to see price most likely continue back higher, right? So, continue to practice this. Hopefully you guys enjoyed this video and I will see you guys in the next one. We'll continue to dive further in depth on this series and dive further in depth on giving you guys the right context and understanding of how to trade. But go into your charts, start practicing these same things, and I will see you guys in the next video. Peace out.