Finding Bias with Breakaway Gap

Summary

In this video, the host delves into the concept of breakaway gaps in trading, explaining how to identify them and their powerful impact on price movement. The video builds upon a previous one discussing fair value gaps, detailing how breakaway gaps form and their significance in determining market bias. The presenter demonstrates the role of breakaway gaps in predicting price targets and how they can influence trading strategies. Viewers are encouraged to apply these concepts, with additional resources, including a $9.99 ebook, available for those seeking a deeper understanding of the topic.

Takeaways

• 😀 A breakaway gap is a special type of fair value gap where the third candle's body closes above the highest point of the second candle.
• 😀 Breakaway gaps are powerful tools to identify market bias, helping traders anticipate price movement and liquidity targeting.
• 😀 When a breakaway gap occurs, it signals that price is likely to continue in the direction of the gap, often reaching liquidity areas first.
• 😀 Fair value gaps (FVG) can be identified by a three-candle price action, with the gap formed between the first and third candles.
• 😀 A breakaway gap shows that price may avoid trading back into the gap immediately, focusing on drawn liquidity first before revisiting the gap.
• 😀 Traders can identify market bias and potential price action by recognizing the presence of breakaway gaps on their charts.
• 😀 The gap between the first and third candle of a fair value gap indicates an imbalance or inefficiency that traders can use to predict price behavior.
• 😀 Drawn liquidity refers to areas where price is likely to be drawn, either upward or downward, and traders use breakaway gaps to identify these movements.
• 😀 Bias in trading is about determining the likely direction of price movement, which can be established by observing breakaway gaps.
• 😀 It's crucial to practice identifying breakaway gaps on charts, as this can significantly improve a trader's ability to predict future price action and refine entry points.
• 😀 The video encourages traders to use lower time frames to fine-tune entries once a bias and breakaway gap are identified on higher time frames.

Q & A

What is a breakaway gap?

A breakaway gap is a type of fair value gap where the body of the third candle in a three-candle price action closes above the highest point of the second candle, indicating a strong momentum in the direction of the price movement.

How is a fair value gap identified?

A fair value gap is identified by looking for a three-candle price action. The highest point of the first candle is marked by the wick, and the lowest point of the third candle is marked as well. The gap between these two is the fair value gap, which is typically found within the body of the middle candle.

What distinguishes a breakaway gap from a regular fair value gap?

A breakaway gap differs from a regular fair value gap in that it shows the third candle's body closing above the highest point of the second candle, signaling a stronger momentum that typically suggests a more aggressive price movement in that direction.

Why is identifying a breakaway gap important for trading bias?

Identifying a breakaway gap is important for determining the market bias because it provides insight into the strength of the price movement. A breakaway gap suggests that price will continue in the direction of the gap, giving traders an indication of where the price is likely to move next.

What should traders do when a breakaway gap is identified?

When a breakaway gap is identified, traders should expect a strong price movement in the direction of the gap. This can guide the trader's bias and provide opportunities to enter the market in alignment with the price's expected direction.

What happens if a breakaway gap fails to appear when there is a drawn liquidity?

If a breakaway gap does not appear when there is drawn liquidity, price movement may become sluggish, and the price may face challenges in reaching the drawn liquidity. Traders should adjust their bias accordingly, expecting potential price pullbacks before a move to liquidity.

What role does liquidity play in trading with breakaway gaps?

Liquidity plays a crucial role in trading with breakaway gaps because price typically moves towards drawn liquidity levels before continuing its trend. If liquidity is drawn above or below the market, the breakaway gap can indicate the potential target price levels for further movement.

How can traders use time frames to refine their trading decisions with breakaway gaps?

Traders can refine their decisions by adjusting their time frames. For instance, a trader might start with a higher time frame like the monthly chart to identify the overall trend and bias, and then zoom into lower time frames, such as the weekly or daily charts, to find precise entry points within the larger trend.

Why is it important to practice identifying fair value gaps and breakaway gaps on charts?

Practicing on charts helps traders to better recognize these patterns in real-time market conditions. By applying the concepts, traders can become more adept at identifying potential breakaway gaps, improving their ability to make informed trading decisions.

How does the Smart Money Acceleration Guide help traders with fair value gaps?

The Smart Money Acceleration Guide helps traders understand the concepts of fair value gaps and breakaway gaps, providing clear instructions and strategies to identify these gaps and trade them effectively, making the process easier for those new to the concepts or struggling with identification.