FVG Explained How the Best Traders Spot Precise Entries

Summary

This video introduces the concept of Fair Value Gaps (FVGs), a powerful tool used by institutional traders to identify precise entry points based on price inefficiencies. The video explains how FVGs are formed when there is an imbalance between supply and demand, leading to aggressive price movements that leave gaps. These gaps act as magnets for the market, often drawing price back to fill them. By understanding FVGs, traders can gain a strategic edge in timing their trades. The video also explores different types of FVGs, how to spot them on charts, and how they can be used to enhance trading strategies with discipline and precision.

Takeaways

• 😀 FVGs (Fair Value Gaps) represent areas where price moved so quickly that it left behind a gap, highlighting a market imbalance.
• 😀 These gaps often act as magnets, with price tending to return to fill them, offering potential trading opportunities.
• 😀 A trader’s mindset, including discipline and learning from losses, is crucial to long-term success, beyond just technical setups.
• 😀 Market behavior is shaped by two core forces: liquidity zones (driving price movement) and fair value gaps (representing imbalances).
• 😀 A fair value gap forms when price jumps rapidly, creating a gap with little to no trading activity, often due to supply and demand imbalances.
• 😀 There are different types of FVGs: Continuation (indicating trend continuation), Exhaustion (suggesting a potential reversal), Breakaway (indicating a strong move), and News FVGs (driven by market-shaking news events).
• 😀 Fair value gaps can be identified on candlestick charts by looking for patterns of three candles, with a notable gap in the middle candle’s range.
• 😀 In a rising market, traders should look for FVGs in the discount area for long trades, and in a bearish market, focus on the premium zone for short trades.
• 😀 FVGs at extreme highs or lows tend to be more significant and provide stronger trading opportunities compared to gaps formed in other areas.
• 😀 Treat fair value gaps as one-time trading opportunities. Once a gap is filled, it should no longer be considered for future trades.

Q & A

What is a Fair Value Gap (FVG)?

A Fair Value Gap (FVG) is an area on a trading chart where the price moved aggressively, leaving behind an imbalance with little to no trading activity. This gap often acts as a magnet, pulling the price back to fill it before continuing its movement.

How do FVGs help traders in predicting price movements?

FVGs help traders by identifying areas where the market is likely to return and fill the gap. Since the market tends to move back to these imbalances to 'rebalance' supply and demand, recognizing these zones gives traders a chance to predict where the price might go next.

What are the key forces driving price movement in the market?

The two key forces driving price movement in the market are liquidity zones and Fair Value Gaps. Liquidity zones fuel price movement by providing orders that push price from one level to another, while FVGs are imbalances caused by sudden price movements that the market tends to revisit.

What are the different types of Fair Value Gaps?

The main types of FVGs are: 1) Continuation FVG, which suggests the trend will continue; 2) Exhaustion FVG, which signals a potential reversal at the end of a trend; 3) Breakaway FVG, indicating a clear break in resistance or support; and 4) News FVG, caused by major news events that impact market value perceptions.

How can traders identify FVGs on candlestick charts?

Traders can identify FVGs on candlestick charts by observing a sequence of three candles. The key is that the wicks of the candles on either side of the middle candle do not overlap its body, leaving a gap. If an inside bar pattern appears, four candles should be considered instead of three for more accurate gap identification.

What should traders look for when using FVGs as entry points?

Traders should ensure that there is a clear break of market structure or a noticeable change in market behavior before using an FVG as an entry point. This indicates the market's direction and potential for a reversal or continuation.

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

The video emphasizes that discipline and mindset are crucial for long-term trading success. Traders need to focus on learning from their losses, setting rules to prevent impulsive actions, and being prepared for the psychological challenges of the profession.

How do FVGs reflect market psychology?

FVGs reflect market psychology by showing imbalances in supply and demand. These gaps can indicate overreactions to news, creating a price imbalance that the market often revisits to restore equilibrium, providing insight into trader sentiment and future price movements.

What are the four rules for using FVGs in trading?

The four rules for using FVGs are: 1) Ensure a clear break of market structure before using FVGs as entry points; 2) In bearish markets, look for gaps in the premium zone, and in bullish markets, in the discount zone; 3) Gaps at extreme highs or lows are more significant; and 4) Treat FVGs as one-time trading opportunities, acting when the price first approaches the gap.

How can FVGs help in understanding the market's future direction?

FVGs can help traders understand the market's future direction by showing where price imbalances exist. The market typically returns to fill these gaps, so by recognizing the type of gap and its position in the market structure, traders can predict whether the price will continue in the current trend or reverse.