Trading The Inefficiency Candles

Yesterday, we saw a sharp drop in Bitcoin price when the Moron announced 50% tariffs to EU goods and 25% tariffs to Apple if their phones aren't made in USA. He sure has a way to ruin a good uptrend and your day, doesn't he? 😅

Well, as traders, we mustn't feel sorry about macro FUD but instead, follow the market wherever it may lead us.

In today's article, I want to take a look at the so-called inefficiency candles, how to spot them and how to trade them.

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Inefficiency Candles

An inefficiency candle is a long, strong-bodied candle that has left a gap of unfilled price between the wicks of its neighbouring bars, reflecting an institutionally driven burst of orders that market makers will often revisit to fill the void.

These are often viewed as a sort of magnets, as the price often retraces to the gap (usually filling 50% of the wick) before returning to the current trend.

Yesterday's tariff news dip was a great example of such:

Here on a 1-hour BTC chart, we can see that when the Orange Man opened his mouth, a sharp decline started, and a long downward hourly candle was formed, followed by another, almost the same-sized candle.

Then we can see that the recovery to fill the inefficiency candle started, and within 2 hours, the gap was filled as the price rose exactly to the halfway point of the candle.

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Trading the Inefficiency Candle

In my opinion, whenever a candle like this is spotted, it's a definite buy. However, I don't mean it's necessarily a good spot to make a long-term buy, but instead, it's a good scalpting opportunity as the price is very likely to revisit and fill the gap. Also, the price will likely return to the original trend, which in this case is bearish because of the news, so selling when the halfway point is reached is advised.

You can also use tools such as the Fibonacci Retracement Tool and draw a line from the nearest high point to the lowest (where the dip bounced back).

Here we can see that the fib levels of 0.681 and 0.786 also hit in between the candle and between these two numbers, a so-called golden pocket was formed, which happens to be very near where the price went to fill the gap. This would mark your target price.

Inefficiency candles, or imbalances or Fair Value Gaps(FVGs), are good short-term trading opportunities because markets love efficiency, and when there's an inefficiency, it needs to be corrected. No matter whether you are spot trading or using leverage, just remember, it's usually just a fix, not a shift in trend. One other thing to keep in mind is that the filling might not happen as quickly as it did with this BTC example.

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HyperEVM

As for the other stuff, I've been planning to move some funds to HyperEVM, which is the second layer of Hyperliquid. Just the other day, I noticed that Rabby had integrated HyperEVM so we can now monitor our holdings & defi positions directly on our wallet.

That's it for today, have a great weekend and don't forget to follow my daily market analyses next week! 🟢

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