FVGs are Superior, but avoid these mistakes

Summary

The video explains the concept of fair value gaps (FVGs) in trading, highlighting their importance and the three common mistakes traders make when using them. It emphasizes the need to understand the context, institutional story, and seek-and-destroy conditions when assessing whether a FVG will hold. The video covers time frame analysis, institutional behavior, and the importance of focusing on recent FVGs. It also discusses how older FVGs lose relevance and the impact of market manipulation. Overall, fair value gaps are positioned as a powerful, simple strategy for traders seeking higher probability setups.

Takeaways

• 😀 Fair value gaps (FVGs) are crucial in trading as they show the market's intention, but understanding when they will hold is key to success.
• ⏳ Context is essential in evaluating fair value gaps. Higher time frames, such as monthly and weekly, have stronger FVGs and should guide decisions on lower time frames like 5-minute charts.
• 💡 Institutional story refers to how the market offers fair value or seeks liquidity. A correct reading of this story is vital for predicting whether an FVG will hold.
• 📊 A higher time frame FVG (e.g., 4-hour) carries more weight than a lower time frame one (e.g., 5-minute), influencing price movements more strongly.
• 🚨 The market will either offer fair value (allowing for retracement and continuation) or seek liquidity (creating manipulation or seeking areas of low liquidity).
• 📉 If an FVG doesn't hold and no new gaps are created, this may signal 'Seek and Destroy' conditions where the market isn't trending but consolidating.
• 🔄 Old fair value gaps, once traded back into, lose their relevance. Only fresh, unfilled FVGs provide valuable trading insights.
• 📏 Seek and Destroy conditions indicate low probability of FVGs holding. When both bullish and bearish FVGs fail, it suggests the market is ranging.
• 📍 FVGs showing intention to move in a certain direction can be used for manipulation, so always assess if a gap is real or false before committing to a trade.
• 💬 Market structure shifts often require an FVG, and while other strategies like order blocks or breaker blocks are useful, they are more effective with FVGs.
• ⚡ Fair value gaps are the core of the trading strategy and simplify decision-making. Every movement in price ultimately ties back to FVGs, making them a crucial tool.

Q & A

What is the main focus of the video regarding trading?

The video emphasizes the importance of fair value gaps in trading and explains why they are superior to other methods. It also addresses common mistakes traders make when using fair value gaps.

What are the three key components to understanding when a fair value gap will hold?

The three key components are context, institutional story, and Seek and Destroy conditions. These factors help traders understand whether a fair value gap is likely to hold or not.

Why is context important when using fair value gaps?

Context is important because higher time frames, like the monthly or weekly, have stronger fair value gaps. A trader should consider the context of the time frames above the one they are trading on to understand which gaps have more influence.

What does the institutional story refer to when analyzing fair value gaps?

The institutional story refers to the market's behavior of offering fair value or seeking liquidity. Understanding whether the market is offering fair value or looking for liquidity helps determine whether a fair value gap will hold.

How can you identify Seek and Destroy conditions?

Seek and Destroy conditions occur when neither bullish nor bearish fair value gaps hold. This typically happens during consolidations or ranging conditions, where the market is not trending in a clear direction.

What is the mistake traders make with old fair value gaps?

Traders often make the mistake of using old fair value gaps, which are gaps that have already been traded into. Once a fair value gap is traded back into, it loses its relevance, and traders should focus on the most recent, unfilled gaps.

Why should traders avoid using old fair value gaps?

Old fair value gaps are no longer relevant because they've already been traded into, which means they no longer provide accurate predictions. Traders should focus on the most recent fair value gaps for better accuracy.

What does the concept of manipulation in fair value gaps refer to?

Manipulation in fair value gaps refers to instances where the market shows an intention through a gap, but that intention is used to deceive traders. This often happens when a fair value gap is not respected and is followed by a new, opposing gap.

What does the video suggest about market structure shifts in relation to fair value gaps?

The video suggests that market structure shifts are less relevant compared to fair value gaps. Fair value gaps can show the market's intentions and drive price movements, sometimes even before a market structure shift occurs.

How does the video demonstrate the high probability of fair value gaps holding?

The video demonstrates that fair value gaps have a higher probability of holding when they are in context, supported by the institutional story, and not in Seek and Destroy conditions. When all these factors align, the gap is more likely to hold.