Lecture Notes: Understanding Splits and Imbalances in Trading

Introduction

• Splits: The difference between an imbalance and a price level.
• Imbalance: An area with no price action.
• Objective: Learn how to identify and use splits to scalp trading levels.

Key Concepts

Imbalance

• Occurs where there's no price action at a certain level.
• Visually identified by a lack of candle bodies in charting.

Split

• Formed right under an imbalance.
• Utilized to predict and react to market movements.

Time Frame

• Always use a 5-minute time frame to identify splits and imbalances.
• Not applicable to other time frames (e.g., 15-minute).

Identifying Splits

• Candles: Focus on the wicks when they fall sharply with no action between them.
• Imbalance and Split Relationship: The split is created where buyers stall below an imbalance.
• Example: A series of red down candles followed by a green candle stalling at a level.

Trading Strategy

Entry and Exit Points

• Entry: Enter trades close to the identified split for minimal risk.
• Stop Loss: Maintain a tight stop loss around 50 ticks.
• Profit Target: Aim for profitable exits before full imbalance fills.

Scenarios

• Fakeouts: Occur when price action temporarily breaks a split but reverses direction.
• Long and Short Strategies: Ready to switch between long and short positions based on momentum.

Examples and Analysis

• Real-Life Examples: Illustrate split formation and breakouts using market replay.
• Balance Between Risk and Reward: Adjust strategies based on market conditions and momentum.

Additional Insights

• Market Imperfections: Imbalances may not always fill completely.
• Trader's Mindset: Stay consistent and adaptable to market changes.
• Efficiency: Use splits to identify multiple trading opportunities.

Conclusion

• Consistency is Key: Remain disciplined with entry and exit strategies.
• Flexible Approach: Be ready to adjust trades based on new splits and imbalances.
• Further Questions: Seek additional clarification as needed.