ICT Mentorship Core Content - Month 04 - ICT Fair Value Gaps FVG

Summary

The video script delves into the concept of 'fair value gaps' in trading, illustrating how price can gap to create a vacuum of trading within a certain range. It uses the EUR/USD daily chart to highlight a specific fair value gap, explaining the significance of price movement and liquidity on either side of the gap. The discussion also touches on the interplay between fair value gaps, liquidity voids, and order blocks, providing practical examples of how these concepts overlap in real-time trading scenarios. The script promises further insights and study materials to help traders understand and capitalize on these market phenomena.

Takeaways

• 📈 A fair value gap is a price range where one side of the market liquidity is offered but not matched, creating a vacuum of trading and resulting in a price gap.
• 🔍 The script uses the EUR/USD daily chart to illustrate a fair value gap, highlighting a specific blue shaded area as an example.
• 📊 The significance of a fair value gap is marked by the presence of liquidity on either side of the gap, which has been traded up into once already, indicating potential future price movement.
• 💹 The script explains that the gap is not concerned with the entire price range but focuses on the area between the low of the previous candle and the high of the next candle.
• ⏳ The concept of fair value gaps is important for understanding price action and potential trading opportunities within a specific time frame.
• 🔄 The script emphasizes that fair value gaps can be seen in different time frames, with smaller time frames often showing a liquidity void where the gap is indicated.
• 📉 The script discusses how price action can fill in fair value gaps, using a four-hour chart to demonstrate how price eventually trades back up into the gap.
• 📋 The script also touches on the concept of liquidity pools and voids, explaining how they can overlap with fair value gaps and influence price action.
• 📝 The speaker mentions that more detailed information about fair value gaps, liquidity voids, and related concepts will be provided in study notes and supplementary teachings.
• 📈 The script concludes with a practical example of how the concepts discussed can be applied to live trading, demonstrating the potential for profitable trades based on understanding fair value gaps and liquidity dynamics.

Q & A

What is a fair value gap in trading?

A fair value gap is a range in price where one side of the market liquidity is offered and typically confirmed with a liquidity void on the lower time frame charts in the same range of price. Price can gap to create a literal vacuum of trading, thus posting an actual price gap.

How is a fair value gap identified on a chart?

A fair value gap is identified on a chart by looking for a range where there's a significant price movement that leaves a 'pocket of space' without trading activity, usually framed by a candlestick pattern on either side.

Why is the blue shaded area on the daily chart considered a fair value gap?

The blue shaded area on the daily chart is considered a fair value gap because it represents a 20 pip range where no trading activity occurred outside of a significant down candle, creating a vacuum in trading within that price range.

What significance does the down candle to the left of the fair value gap have?

The down candle to the left of the fair value gap signifies that the price had previously traded up into the range, indicating buy side liquidity had been offered and then taken, which is crucial for understanding the formation of the fair value gap.

How does the concept of fair value gaps relate to trading strategies?

Fair value gaps are significant in trading strategies because they represent areas where price is expected to eventually trade back into, filling the gap. Traders can use this understanding to anticipate and capitalize on price movements that seek to fill these gaps.

What is the importance of the 105.15 to 105 big figure price range in the context of the fair value gap?

The 105.15 to 105 big figure price range is important because it represents the area where buy side liquidity was previously offered and taken, and it is not the focus of the fair value gap. Instead, the focus shifts to the lower area between 105 big figure down to 104.75, which is the actual fair value gap.

Why is it important to study fair value gaps on the specific time frame they occur?

Studying fair value gaps on the specific time frame they occur is important because it provides the accurate context for the gap. While gaps can be broken down into smaller time frames, they may appear as liquidity voids with multiple candles creating the open space of range.

How can the concept of fair value gaps be applied in a range-bound market?

In a range-bound market, fair value gaps are particularly useful as they can signal potential areas for price reversals or continuations. Traders can look for opportunities to enter trades when the price approaches these gaps, anticipating a return to fill the gap.

What is the significance of the price movement from the low to the close of a candle within a fair value gap?

The price movement from the low to the close of a candle within a fair value gap indicates that buy side liquidity was offered and accepted at that range. This information is crucial for traders to understand the potential for price to return to that range to fill the gap.

How do liquidity pools and liquidity voids relate to fair value gaps?

Liquidity pools and liquidity voids are related to fair value gaps in that they can both contribute to the formation of gaps. A liquidity pool can lead to a price run that creates a gap, while a liquidity void can occur when there's a lack of trading activity in a specific price range, which can also lead to a fair value gap.