Why Did ICT Switch From Order Blocks to Fair Value Gaps? ICT Trading Strategy

Summary

In this video, the speaker discusses the differences between fair value gaps and order blocks in trading, highlighting why ICT transitioned from order blocks to fair value gaps in his 2022 mentorship. Fair value gaps represent imbalances in the market where price rapidly moves towards liquidity, while order blocks indicate where large market participants enter trades. The speaker emphasizes the importance of context when choosing between the two tools and suggests that both can be effective depending on the market situation. Ultimately, understanding when to use each method can enhance trading success.

Takeaways

• 😀 Fair value gaps indicate imbalances in the market, showcasing areas where price is likely to return to fill orders.
• 📈 Order blocks are defined as candles preceding significant price moves and show where large market participants enter trades.
• 🔄 ICT's shift from order blocks to fair value gaps was driven by their effectiveness in trading reversals and ease of teaching.
• ⚖️ The choice between using fair value gaps or order blocks depends heavily on market context, particularly during liquidity sweeps.
• 🚀 Fair value gaps reflect algorithmic activity, making them key indicators of rapid market movements and potential reversals.
• 🏦 Order blocks provide higher risk-to-reward ratios, making them valuable in certain trading strategies when used correctly.
• 🧠 Understanding market dynamics and the nuances of each tool is essential for successful trading, beyond just applying formulas.
• 🔍 Traders should assess both strategies and consider their unique contexts before deciding which one to employ.
• 🕵️‍♂️ Displacement in the market signals significant price pushes and is a critical factor when using fair value gaps for trading.
• 💡 Both fair value gaps and order blocks can be used together to enhance trading strategies and capitalize on market movements.

Q & A

What is the main focus of the video?

The video discusses the differences between fair value gaps and order blocks in trading, explaining when to use each and why ICT transitioned from using order blocks to fair value gaps.

What is a fair value gap?

A fair value gap is an area in the market where there is a price gap between candles, indicating an imbalance of orders. It suggests that many buy or sell orders were left unfilled, and the price may return to fill these orders.

Why are fair value gaps considered significant in trading?

Fair value gaps highlight areas where the market has rapidly moved, showing strong displacement and the presence of algorithms that drive prices toward liquidity.

How does an order block differ from a fair value gap?

An order block is defined as a candle that closes in one direction before a significant move in the opposite direction, indicating where large market participants, like financial institutions, entered the market.

What are the advantages of using fair value gaps?

Fair value gaps can indicate when the market is moving quickly towards liquidity, providing traders with opportunities to enter trades with potential for profit during significant price movements.

When should traders focus on using fair value gaps?

Traders should use fair value gaps when liquidity is being swept, as this context indicates that market manipulation has occurred, making the gap a reliable point for potential trades.

What are the key elements that lead to a successful trade using order blocks?

Order blocks are valuable for achieving higher risk-to-reward ratios, especially when they are formed in conjunction with fair value gaps during market displacement.

Why did ICT switch from order blocks to fair value gaps in his teaching?

ICT found that fair value gaps are easier to teach and use, particularly in the context of reversals, which became the primary focus of his 2022 mentorship program.

What is the importance of context in trading according to the video?

Understanding the context in which fair value gaps and order blocks appear is crucial. It helps traders determine when to use each tool effectively, rather than relying solely on one method.

How can improving risk-to-reward ratios impact a trader's profitability?

Enhancing risk-to-reward ratios can significantly increase profitability by maximizing gains while minimizing losses, which is essential for consistent success in trading.