ICT's First Presented FVG Model - Explained

Summary

In this video, the presenter covers ICT's first presented fair value gap model, focusing on rules and strategies for its application. It highlights the significance of the opening range from 9:30 to 10:00 a.m. New York time, explains how to identify and mark fair value gaps, and explores how to use these gaps in both directions. The presenter discusses the importance of having a clear bias and context when trading, incorporating elements like opening range gaps, premium gaps, and liquidity draws. The video emphasizes understanding market narrative and the importance of using fair value gaps within a broader strategy for successful trading.

Takeaways

• 😀 The first step in using ICT's Fair Value Gap model is identifying the opening range between 9:30 a.m. and 10:00 a.m. New York time.
• 😀 A Fair Value Gap cannot form on the 9:30 a.m. candle; the earliest it can form is on the 9:31 a.m. candle.
• 😀 After identifying the Fair Value Gap, it should be extended to 3:45 p.m. New York time unless in a trending environment.
• 😀 The Fair Value Gap can be used for both long and short trades, but it requires context and a bias to determine the direction of the trade.
• 😀 The Opening Range Gap is different from the Opening Range and is calculated from the previous day's 4:14 p.m. to the next day's 9:30 a.m.
• 😀 A premium Opening Range Gap suggests a 70% chance that price will return to the midpoint of the gap during the first 30 minutes of the trading day.
• 😀 The Fair Value Gap can be treated as an inversion if the overall market bias is in the opposite direction (e.g., bullish gap used as a short).
• 😀 The opening range gap midpoint is a key level to watch when considering the likelihood of price returning to it after opening higher.
• 😀 Smart money activity, such as taking out buy-side liquidity or entering consolidations, is an important factor in determining how to use the Fair Value Gap.
• 😀 Context and narrative are crucial when using the Fair Value Gap model, as they help determine whether the gap will be respected or serve as an inversion.

Q & A

What is the primary focus of ICT's first presented fair value Gap model?

The primary focus is on identifying the first presented fair value gap that forms between 9:30 a.m. and 10:00 a.m. New York time and understanding how it can be used with various strategies, such as trading it directly or utilizing it as an inversion fair value gap, with the help of a proper bias and context.

What is the opening range, and why is it important in this model?

The opening range is defined as the time between 9:30 a.m. and 10:00 a.m. New York time. It is critical because it defines the interval in which the first presented fair value gap is identified, which will later be extended and potentially used for multiple trades within the day.

Why can't the second candle of a fair value gap form at 9:30 a.m.?

The second candle of a fair value gap cannot form at 9:30 a.m. because the rule requires that it must form on the 9:31 a.m. candle or later. This ensures that the fair value gap is valid and aligns with the model's rules.

How is the fair value gap extended once identified?

Once a fair value gap is identified between 9:30 and 10:00 a.m., it is extended to 3:45 p.m. New York time, as long as the market is not trending. This extension helps to capture potential price movement in the gap and offers opportunities for multiple trades.

What does ICT mean by 'opening range gap,' and how does it differ from the opening range?

The opening range gap is the difference between the previous day's settlement at 4:14 p.m. and the open at 9:30 a.m. It differs from the opening range, which is the time between 9:30 a.m. and 10:00 a.m. The opening range gap helps to identify if there is a premium gap (if the market opens higher) or a discount gap (if the market opens lower).

What is the significance of the midpoint of the opening range gap?

The midpoint of the opening range gap is significant because ICT teaches that there is a 70% chance that the price will return to this midpoint within the first 30 minutes if there is a premium gap (when the market opens higher than the previous day's settlement).

How does the premium gap impact trading decisions between 9:30 a.m. and 10:00 a.m.?

If a premium gap forms, ICT suggests that there is a 70% chance that the price will return to the midpoint of the gap within the first 30 minutes. This offers a potential bias for trading and helps to inform whether to expect a continuation or a reversal.

What is the role of bias and narrative in determining how to trade a fair value gap?

Bias and narrative play a crucial role in determining how to trade a fair value gap. A trader must understand the broader context, such as whether the market has a bullish or bearish bias, and why price is expected to move in a particular direction. This helps in deciding whether to trade a fair value gap as a regular setup or as an inversion.

What is an inversion fair value gap, and how can it be used?

An inversion fair value gap occurs when a fair value gap that would normally be used for a long trade (if bullish) is instead treated as a short opportunity due to an opposing market bias. It can be used when the context suggests the market is likely to move in the opposite direction from the original gap's intent.

How does the context of liquidity pools affect trading decisions related to fair value gaps?

Liquidity pools, both buy-side and sell-side, are key factors in determining the direction of price movement. When a fair value gap is formed near a liquidity pool, traders anticipate that the price may move towards it. For example, if buy-side liquidity is taken out, the market may move towards sell-side liquidity, guiding the trader's decisions on how to trade the fair value gap.