Which is BETTER? Fair Value Gaps or Order Blocks | ICT Trading & Smart Money Concepts

Summary

In this video, the presenter compares two trading strategies—entering trades from fair value gaps versus order blocks—using backtested data from GBP/USD in January 2023. The analysis highlights the pros and cons of each approach, noting that while fair value gaps can lead to larger stop losses and lower risk-to-reward ratios, order blocks offer better risk management and higher profit potential. Backtesting results show a higher overall profit when using order blocks, emphasizing the importance of data-driven decision-making in trading strategies. The presenter encourages viewers to conduct their own tests to determine the best approach for their trading style.

Takeaways

• 😀 Comparing entry strategies: Fair value gaps vs. order blocks.
• 😀 The analysis focuses on GBP/USD trades from January 2023.
• 😀 Fair value gaps can complicate stop-loss placement due to overlapping order blocks.
• 😀 A riskier approach with fair value gaps may result in premature stop-outs.
• 😀 Entering from order blocks generally offers better risk-to-reward ratios.
• 😀 Backtesting data showed a higher profit percentage when using order blocks.
• 😀 For January 2023, trading from order blocks yielded a 9.8% profit compared to 8.86% from fair value gaps.
• 😀 Order blocks provided a more reliable stop-loss strategy with smaller losses.
• 😀 Profit per trade is higher when entering from order blocks versus fair value gaps.
• 😀 Traders are encouraged to backtest their strategies to determine the most effective entry method.

Q & A

What is the main focus of the video?

The video compares trading strategies based on entering from fair value gaps versus order blocks, using backtesting data from GBP/USD in January 2023.

What problem does the speaker identify when entering trades from fair value gaps?

The main problem is that entering from fair value gaps can negatively impact risk-to-reward ratios due to the need for a larger stop loss, particularly when there are nearby order blocks.

How does the speaker determine entry points for trades?

The speaker looks for liquidity grabs and breaker structures, analyzing candle formations to decide whether to enter from a fair value gap or an order block.

What risk-to-reward ratio does the speaker mention for trades entered from fair value gaps?

The risk-to-reward ratio mentioned for trades entered from fair value gaps is 2.56, which is considered not optimal compared to entering from order blocks.

What was the outcome of the trade the speaker took based on the fair value gap?

The trade based on the fair value gap initially tapped in but ultimately did not succeed as the price moved back up into the order block, resulting in a stop out.

What does the speaker conclude about entering trades from order blocks?

The speaker concludes that entering from order blocks is more beneficial, as it allows for a smaller stop loss and a better risk-to-reward ratio, with a ratio of 5.39 in this case.

What backtesting results did the speaker present for trading from order blocks?

The backtesting results showed a profit of 9.8% for the month, winning three out of four trades, compared to an 8.86% profit from trades entered based on fair value gaps.

What is the profit factor for trades entered from order blocks?

The profit factor for trades entered from order blocks is 10.61, indicating a strong performance based on the backtesting results.

What software did the speaker use for backtesting?

The speaker used Trader Edge software for backtesting their trades and analyzing the results.

What is the speaker's recommendation for traders regarding entry strategies?

The speaker recommends that traders backtest their own strategies to determine which entry method—fair value gaps or order blocks—yields better results for their trading style.