How To Trade The Fair Value Gap + liquidity | Maximizing Profits

Summary

This video introduces a high-win-rate trading strategy involving fair value gaps (FVGs) and liquidity zones. Large institutional orders cause sudden price movements, forming FVGs. Prices tend to revert to these levels as remaining orders execute. Successful trading requires a clean FVG area with three consecutive bullish or bearish candles, a change of character overlapping the FVG, and a liquidity zone forming just before the price reaches the FVG. The video emphasizes the importance of proper entry points and market analysis, warning against entering trades prematurely.

Takeaways

• 💡 Fair Value Gaps (FVG) occur when large institutions cause sudden price movements due to significant buying or selling orders, creating an imbalance in the market.
• 🔍 Prices often return to FVG areas because not all of the large institution's orders are executed, requiring a return for the remaining orders to be completed.
• 🛑 The importance of liquidity zones is highlighted as they form where buyers and sellers meet, creating consistent highs and lows that activate stop-loss orders.
• 📊 For a valid FVG entry area, it should consist of three consecutive bullish or bearish candles, indicating a strong trend before the gap.
• ✅ The strategy requires a change of character that overlaps with the FVG area, indicating a significant market shift that aligns with the gap.
• 🚫 A liquidity zone must form just before the price reaches the FVG area to confirm the entry point, adding significance to the FVG area.
• 📍 The entry point for a trade using this strategy is marked by the change of character candle overlapping the FVG area, with the first candle of the FVG as the stop loss.
• 📉 The failure of a trade can occur if the price has previously interacted with the FVG area, as shown by candlestick shadows in the liquidity zone.
• 🚀 Smart money traders look for structural breaks and order blocks, using them as entry points and anticipating stop-loss triggers for profit.
• 🔄 In cases of multiple FVGs, the overlapping area with a change of character is considered the entry point, but all conditions must be met.
• 🛑 Avoid entering trades when conditions are not met, even if a change of character overlaps with an FVG, as it can lead to losses.

Q & A

What is the main topic of the video?

The main topic of the video is a trading strategy involving fair value gaps (FVG) and liquidity, which has a high win rate.

What causes a fair value gap (FVG) to form?

A fair value gap forms when large institutions enter substantial buying or selling orders, causing prices to rise or fall sharply without a gradual adjustment, creating an imbalance.

Why do prices usually return to the fair value gap areas?

Prices return to the fair value gap areas because not all orders from large institutions are executed due to the sudden influx of money, and prices must return for the remaining transactions to become active.

What is the significance of liquidity in the context of fair value gaps?

Liquidity is significant because it provides the necessary counterparties for transactions to occur. A liquidity zone is created by establishing consistent highs and lows, which encourages traders to place orders and stop-losses to become active as the price reaches the desired area.

What are the initial conditions required for entering a trade with this strategy?

The initial conditions include the formation of an FVG area consisting of three consecutive bullish or bearish candles, and the FVG area should be formed after a change of character that overlaps with the FVG area.

What is the final confirmation for entering a trade with this strategy?

The final confirmation is the establishment of a liquidity zone just before the price reaches the fair value gap area, which adds more significance to the value gap area.

What is the entry point for a trade according to the strategy?

The entry point is considered at the change of character candle that overlaps with the fair value gap area.

How is the stop loss determined in this strategy?

The stop loss is determined by the first candle forming the fair value gap.

Why did the buy trade fail in the example provided in the script?

The buy trade failed because the price had previously reached the fair value gap area, as indicated by the interaction of candlestick shadows in the liquidity zone with the fair value gap area, making the area no longer suitable for entry.

What is the correct entry strategy according to the video?

The correct entry strategy involves three consecutive bullish candles, a change of character overlapping the fair value gap area, and a liquidity zone. One should place a buy order and wait without rushing into a trade.

What should be done if the change of character does not overlap with any of the fair value gaps?

If the change of character does not overlap with any of the fair value gaps, it is advised not to enter the trade, as it may result in a loss.

What is the advice for traders practicing this strategy?

Traders are advised to delve into practice, repetition, and backtesting to explore this strategy on the chart, and to take liquidity zones seriously to identify the proper entry point.

Outlines

00:00

📈 Fair Value Gaps and Liquidity Trading Strategy

This paragraph introduces a high win rate trading strategy involving fair value gaps (FVG) and liquidity zones. FVGs occur when large institutions execute substantial orders causing sharp price movements, creating an imbalance. Prices are expected to return to these areas as not all orders are executed due to the influx of money. The importance of liquidity zones is highlighted, as they are formed by consistent highs and lows, facilitating the activation of stop-loss orders for traders and allowing large institutions to acquire market liquidity. The entry conditions for this strategy are detailed: a valid FVG area must consist of three consecutive bullish or bearish candles, overlap with a change of character, and be approached by a liquidity zone. The entry point is the change of character candle overlapping the FVG area, with the first FVG candle as the stop loss. The strategy's implementation is illustrated with examples, including a case where the trade fails due to the price having previously touched the FVG area, indicating the need for a 'clean' FVG area for entry.

05:01

🚀 Correct Entry Strategy and Market Analysis

The second paragraph emphasizes the correct entry strategy for trading, which includes three consecutive bullish candles, a change of character overlapping the FVG area, and the presence of a liquidity zone. It advises against rushing into trades and stresses the importance of market analysis and proper entry timing. The paragraph also discusses the role of large banks and institutions in gathering market liquidity after activating trader stop losses to move prices in their desired direction. It provides guidance on identifying entry points and the significance of liquidity zones. The importance of practice, repetition, and backtesting is highlighted to explore the strategy effectively. The paragraph concludes with an example of a chart with multiple FVGs, where the entry point is the area that overlaps with the change of character, and cautions against entering trades when conditions are not met to avoid losses.

Keywords

💡Fair Value Gaps (FVG)

Fair Value Gaps refer to the price imbalances that occur when large institutions execute substantial buying or selling orders, causing prices to rise or fall sharply without gradual adjustment. In the video, FVGs are a central concept, as they are the result of significant cash volume movements by institutions, leading to a temporary market imbalance that is expected to correct itself, providing a high win rate strategy for traders.

💡Liquidity Zone

A Liquidity Zone is an area on a price chart where consistent highs and lows are established, attracting traders to place orders. It is crucial for the activation of the remaining transactions from large institutions after an FVG has occurred. In the script, the formation of a Liquidity Zone just before the price reaches the FVG area is a key confirmation for entering a trade, as it signifies a concentration of potential buying or selling interest.

💡Win Rate

Win Rate in the context of trading refers to the percentage of successful trades out of the total number of trades made. The video emphasizes that the strategy involving FVGs and Liquidity Zones has a 'very high win rate,' suggesting that traders can expect a higher probability of successful trades when employing this strategy.

💡Price Adjustment

Price Adjustment is the process by which market prices gradually change to reflect new information or changes in supply and demand. The video script mentions that FVGs occur without price adjustment, meaning prices move sharply rather than through a series of smaller, more gradual changes.

💡Institution

Institutions in the financial context are large organizations such as banks, investment firms, or hedge funds that have the capital to make substantial market transactions. The script describes how the entry of these institutions into the market with significant orders can create FVGs, impacting the price movement and offering trading opportunities.

💡Stop-Loss

A Stop-Loss is an order placed by a trader to sell a security when it reaches a certain price, to limit potential losses. In the video, the stop-loss becomes active as the price reaches the desired area, and large institutions use this to acquire liquidity, indicating that stop-loss orders can be a factor in the formation of FVGs and Liquidity Zones.

💡Bullish/Bearish Candles

Bullish and bearish candles refer to the patterns on a candlestick chart that indicate upward (bullish) or downward (bearish) price movements. The script specifies that a valid FVG area should consist of three consecutive bullish or bearish candles, which is a condition for considering an area as a valid entry point for the trading strategy discussed.

💡Change of Character

Change of Character in the script refers to a significant shift in the market trend or pattern. It is important for the trading strategy because the FVG area should form after such a change, and the area should overlap with this change for it to be considered a valid entry point.

💡Entry Point

An Entry Point is the specific price level at which a trader decides to enter a trade. The video describes how to identify an entry point by looking for the overlap of a change of character with an FVG area and the presence of a Liquidity Zone, which together confirm a high-probability trading opportunity.

💡Risk and Reward

Risk and Reward in trading represent the potential loss and gain associated with a trade, respectively. The video mentions that following the FVG and Liquidity Zone strategy leads to trades with 'good risk and reward,' meaning that the potential gains outweigh the risks, given the high win rate of the strategy.

💡Smart Money Trader

A Smart Money Trader is a term often used to describe traders who have access to significant capital and use sophisticated strategies to make trades. In the context of the video, identifying a break of structural and order block and waiting for the price to reach that area before entering a trade is characteristic of smart money trading behavior.

Highlights

The video discusses a trading strategy combining fair value gaps and liquidity with a high win rate.

Fair value gaps (FVGs) occur when large institutions cause sharp price movements due to substantial buying or selling orders.

Prices often return to FVG areas because not all orders from large institutions are executed immediately.

Liquidity zones are created by consistent highs and lows, attracting traders to place orders.

For a valid FVG entry, three consecutive bullish or bearish candles are required.

A change of character that overlaps with the FVG area is needed for a valid entry.

A liquidity zone just before the price reaches the FVG area confirms the entry point.

The entry point is marked by the change of character candle overlapping the FVG area.

The first candle forming the FVG serves as the stop loss for the trade.

A failed trade example is provided, illustrating the importance of a clean FVG area for entry.

The video explains the correct entry strategy involving three consecutive bullish candles, a change of character, and a liquidity zone.

Rushing into a trade is discouraged; market analysis and timing are emphasized for any strategy.

Liquidity zones are crucial for identifying proper entry points in trading.

In charts with multiple FVGs, the area that overlaps with the change of character is considered for entry.

The importance of not entering a trade if any condition is not met is stressed to avoid losses.

The video encourages practice, repetition, and backtesting to explore the strategy effectively.

A call to action for viewers to like and subscribe if they find the strategy beneficial concludes the video.

Transcripts

today's video is about a combination of

fair value gaps and liquidity it's a

strategy with a very high win rate

however there are a few points that you

need to consider for successful trading

stay tuned in the video and please like

And subscribe to us but what is the

meaning and essence of fair value gaps

or in short fvg when large institutions

enter buying or selling orders with

substantial amounts of money due to the

significant cash volume of these

institutions

prices suddenly start to rise or fall

sharply without price adjustment forming

what is known as an imbalance this

imbalance is referred to as a fair value

Gap now we come to the point of why figs

are important in transactions and why

prices usually return to these areas

again the answer is quite simple because

prices suddenly move and not all orders

from large institutions have been

executed due to a large influx of money

into the market only a portion of these

institutions transact actions have been

completed so prices must return to these

areas again for the remaining

transactions to become active however

for the transactions of these

institutions to be activated there needs

to be a buyer or a seller here we come

to the second stage which is

liquidity but why does the liquidity

Zone form if you are a buyer you need

someone to sell to you and vice versa if

you're a seller you need to find a buyer

that's precisely why the liquidity zone

is created by establishing consistent

highs and lows it encourages traders to

place orders when these highs and lows

fail stop-loss of Traders become active

as the price reaches the desired area

large institutions acquire all the

liquidity what confirmations are

required for entering with this strategy

initially the formed fvg area should

consist of three consecutive bullish or

bearish candles it means that even if

one of the candles forming the fair fair

value Gap area is different it will not

be considered as a valid entry area the

second condition is the formation of the

fair value Gap area after a change of

character such that this change of

character overlaps with the fair value

Gap area it means that if a candle that

price break through that which forms

change of character and because price

reversal has passed out of the fair

value Gap area or vice versa it does not

overlap with that area at all this area

is not suitable for trading

the final confirmation to enter the

trade is to establish a liquidity Zone

just before the price reaches the fair

value Gap area this liquidity Zone adds

more significance to the value Gap area

now that all necessary confirmations for

entering the trade are available we

consider the change of character candle

that overlaps with the fair value Gap

area as the entry point highlighted in

blue the first candle forming the fair

value Gap as the stop loss we wait for

the price to reach that area

and this is a confident trade with good

risk and reward following this we will

examine several charts for implementing

this strategy in trading to become aware

of potential mistakes now let's examine

the entry conditions for trading on this

chart the fair value Gap area is formed

by three bullish candles so the first

condition is

met the subsequent condition involve

formation of the fair value Gap area

after a change of character such that

this change of character overlaps with

the fair value Gap area this two

condition has also been met here and the

final condition is the formation of a

liquidity Zone before the price reaches

the fair value Gap area now we consider

the overlapped area as the entry point

and also the first candle forming the

fair value Gap as the stoploss then wait

for the price to reach that

area

the Buy trade failed but what's the

reason for this failure the reason is

that the price had previously reached to

the fair value Gap area by observing the

Candlestick shadows in the liquidity

Zone you can see that these Shadows have

interacted with the fair value Gap area

this fact makes this area no longer

longer suitable for entry you need a

clean area of fair value gap for entry

if the liquidity Zone forms slightly

above the fair value Gap area then we

could enter into a trade by returning

the price to the fair value Gap area

let's go for the next chart if you are a

smart money Trader what do you do you

probably identify a break of structural

and Order block on the chart and then

wait for the price to reach that area

then entering a trade and similarly the

stock top loss of those who had entered

into the trade within the order block

area become active what is the correct

entry strategy three consecutive bullish

candles a change of character

overlapping the fair value Gap area and

a liquidity Zone it is sufficient to

place a buy order and

wait never rush into a trade regardless

of the trading strategy you employ

strive to analyze the market correctly

and enter the trade at the right moment

take liquidity zon seriously to identify

the proper entry

point these are large Banks and

institutions that after activating

Trader stop losses gather all the market

liquidity and move the price in the

direction they

desire in a chart where multiple fair

value gaps are formed you consider that

area as an entry point that overlaps

with the change of character and even if

one of the conditions is not met we will

not enter into the trade in this chart

you can see that the change of character

does not overlap with none of the fair

value gaps so even if you enter the

trade it will cause you a loss even if

the change of character on this chart

overlaps with the first area we should

not enter the trade because one of the

constituent candles that formed a fair

value Gap was

bearish sure delve into practice

repetition and taking back tests to

explore this strategy on the chart if

you find it beneficial please like And

subscribe to

us