Fair Value area - is the box -where price has spent most of the time trading at, an area where supply met demand.
The price area confined between those two horizontal lines in the chart above is the fair value area
Excess Price -
You can see that price has gone three times above the higher limit of value that I have drawn on the chart and three times below the lower limit. However,price did not spend much time in those areas, it just tested those levels, found demand on the downside, supply on the upside and quickly retraced back in the area where the bulk of trading was taking place. These areas where price deviates away from value for a short period of time only to come back inside it is excess price.The excess price you have seen in the above examples,can be interpreted in the following way.It reveals clear zones. As a result, they will serve as strong support or resistance levels. It shows rejection of a price level.Observe how price behaves at the “1” area. It goes outside of what is perceived as value for price but it spends very little time there. It comes back down again which will consolidate the fair value area even more. The same thing happens at “2”, "3" and “4” area levels. This reveals the buyers and the sellers clearly entering the market as they consider these levels of price as advantageous for them.
Tail or spike -
look @ 4,& 6. Observe how price goes above value and spends there the least amount of time possible. This level is rejected very swiftly. The supply increased rapidly here. This is a clearly visible footprint of the sellers entering the market. The tail shows greater rejection of that price area.
I shall follow this article up tomorrow
2 Fair value rectangles on daily chart
rectangles on the chart are value areas. They all give the price area value. The market moves from balance to imbalance, between supply and demand. When in value, the market is balanced, meaning that supply is roughly the same as demand When the market is not in value, it is actually seeking value by moving higher and higher.
where the market has been showing the greatest trading activity.
It is basically a pivotal support and resistance level inside the value area.
It is called pivotal because how price oscillates around it.
INITIATIVE & RESPONSIVE TRADING
what happens when the buyers or the sellers decide that the current price the security is trading at is not fair anymore? They enter the market, they take the initiative and move price away from value. That is initiative trading activity.
The responsive moves however, are different. They do not have the
force of the initiative movements. As noted in the above chart, the response of
buyers that comes after the sellers taking initiative and pushing price below
value fast, is weak.
you can even draw moving value price rectangles on a slowly moving acceleration channel or deceleration channel as shown below.
"slowly being the key word"