The Secret FVG that we don’t trade back into: BreakAway Gap
Summary
TLDRThis video delves into the concept of breakaway gaps in trading, explaining how to identify and profit from them. It emphasizes the importance of understanding the market's efficiency and using target-based strategies rather than focusing solely on fair value gaps. The speaker uses analogies, like the gym walk, to illustrate why a market retracement to a fair value gap may not always be logical. The video also introduces key factors such as two-candle rejection, the absence of fair value gaps, and market intentions to predict breakaway gaps. Ultimately, it encourages using these insights alongside indicators for better decision-making.
Takeaways
- 😀 Breakaway gaps are not always tradeable back into; understanding the context is crucial to predict if a gap will retrace or continue.
- 😀 Predicting breakaway gaps involves understanding the market’s efficiency; the market avoids inefficiency by not retracing when it's unlikely to reach a target.
- 😀 A breakaway gap occurs when the market does not retrace back to a fair value gap but rather moves directly toward its target, such as a premium or discount range.
- 😀 An analogy of walking to the gym helps explain breakaway gaps: If you're close to your target, retracing back to the starting point is inefficient, just like the market avoiding unnecessary retracements.
- 😀 The target after forming a fair value gap is typically the closest PD (premium/discount) range. If the gap is too far from the target, the market is unlikely to retrace.
- 😀 A breakaway gap is confirmed once the market moves towards the target without retracing into the fair value gap. The move towards the target validates the market's efficiency.
- 😀 The process of identifying a breakaway gap includes measuring the distance to the target and comparing it to the distance from the fair value gap.
- 😀 Understanding when a fair value gap turns into a breakaway gap is not straightforward. It's about stacking probabilities rather than being certain.
- 😀 To predict breakaway gaps, traders should focus on the market's behavior, such as two-candle rejection patterns, the lack of fair value gaps, and bullish intentions that signal no consolidation.
- 😀 Analyzing the market on different time frames, such as the weekly or daily, reveals whether the fair value gap is respected, helping to predict whether the market will break away or consolidate.
Q & A
What is a breakaway gap, and how does it differ from a fair value gap?
-A breakaway gap is a price gap that occurs when the market moves efficiently towards its target, often without retracing back to the fair value gap. A fair value gap is a price range where the market could retrace before continuing higher, but a breakaway gap suggests the market will likely not return to that gap as it is aiming directly for its target.
How can the analogy of going to the gym help explain breakaway gaps in the market?
-The gym analogy illustrates market efficiency. Just as it would be inefficient to walk back home for a towel after getting close to the gym, it's unlikely for the market to retrace back to a fair value gap if it's already close to its target. The market prefers the most efficient path, which means it will move toward its target rather than retracing unnecessarily.
What is the key factor in determining whether a breakaway gap will form?
-The key factor is the target the market is aiming for. If the target is within a short distance and more efficient, it is less likely for the market to retrace back to the fair value gap, making it more likely for a breakaway gap to form.
Why is the concept of market efficiency important in predicting breakaway gaps?
-Market efficiency is important because it explains why the market will usually choose the most direct and least inefficient path to its target. This helps in predicting whether a breakaway gap will occur, as the market will not retrace to a fair value gap if it is inefficient to do so.
What is the significance of the two-candle rejection in predicting breakaway gaps?
-A two-candle rejection, observed on a smaller time frame, signals that the market is rejecting lower prices and is likely to continue higher. This can be a sign that a breakaway gap is forming, as it indicates a strong market intention to push forward.
What does a lack of fair value gaps suggest about market behavior?
-A lack of fair value gaps suggests that the market may be ready to create a new fair value gap, which can lead to further expansion. It also indicates that the market is less likely to consolidate, and may instead continue moving in the direction of its current trend.
What role does the market's intention play in determining if a breakaway gap will form?
-The market's intention to continue higher is a strong indicator that a breakaway gap may form. If there is clear bullish intention (such as respecting previous fair value gaps and pushing higher), it is more likely that a breakaway gap will occur rather than a retracement to lower levels.
How can a trader use lower time frames to identify breakaway gaps?
-Traders can use lower time frames to spot more precise fair value gaps. By observing smaller price action patterns and identifying where the market is respecting or rejecting these gaps, they can gain better insight into whether a breakaway gap will occur.
How can a trader tell if a breakaway gap is likely after a large candle move?
-After a large candle move, if the market continues expanding without significant retracement, it can indicate a breakaway gap. This is confirmed when the market doesn’t consolidate or retrace back into a previous fair value gap and instead keeps pushing forward towards its target.
What is the significance of respecting previous fair value gaps when predicting a breakaway gap?
-Respecting previous fair value gaps is important because it shows the market is continuing its trend in a clear and consistent direction. If the market is not retracing to these gaps and is instead expanding, it is more likely that a breakaway gap will form, signaling continued movement in the same direction.
Outlines

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