ICT Mentorship Core Content - Month 04 - ICT Fair Value Gaps FVG
Summary
TLDRThe video script delves into the concept of 'fair value gaps' in trading, illustrating how price can gap to create a vacuum of trading within a certain range. It uses the EUR/USD daily chart to highlight a specific fair value gap, explaining the significance of price movement and liquidity on either side of the gap. The discussion also touches on the interplay between fair value gaps, liquidity voids, and order blocks, providing practical examples of how these concepts overlap in real-time trading scenarios. The script promises further insights and study materials to help traders understand and capitalize on these market phenomena.
Takeaways
- 📈 A fair value gap is a price range where one side of the market liquidity is offered but not matched, creating a vacuum of trading and resulting in a price gap.
- 🔍 The script uses the EUR/USD daily chart to illustrate a fair value gap, highlighting a specific blue shaded area as an example.
- 📊 The significance of a fair value gap is marked by the presence of liquidity on either side of the gap, which has been traded up into once already, indicating potential future price movement.
- 💹 The script explains that the gap is not concerned with the entire price range but focuses on the area between the low of the previous candle and the high of the next candle.
- ⏳ The concept of fair value gaps is important for understanding price action and potential trading opportunities within a specific time frame.
- 🔄 The script emphasizes that fair value gaps can be seen in different time frames, with smaller time frames often showing a liquidity void where the gap is indicated.
- 📉 The script discusses how price action can fill in fair value gaps, using a four-hour chart to demonstrate how price eventually trades back up into the gap.
- 📋 The script also touches on the concept of liquidity pools and voids, explaining how they can overlap with fair value gaps and influence price action.
- 📝 The speaker mentions that more detailed information about fair value gaps, liquidity voids, and related concepts will be provided in study notes and supplementary teachings.
- 📈 The script concludes with a practical example of how the concepts discussed can be applied to live trading, demonstrating the potential for profitable trades based on understanding fair value gaps and liquidity dynamics.
Q & A
What is a fair value gap in trading?
-A fair value gap is a range in price where one side of the market liquidity is offered and typically confirmed with a liquidity void on the lower time frame charts in the same range of price. Price can gap to create a literal vacuum of trading, thus posting an actual price gap.
How is a fair value gap identified on a chart?
-A fair value gap is identified on a chart by looking for a range where there's a significant price movement that leaves a 'pocket of space' without trading activity, usually framed by a candlestick pattern on either side.
Why is the blue shaded area on the daily chart considered a fair value gap?
-The blue shaded area on the daily chart is considered a fair value gap because it represents a 20 pip range where no trading activity occurred outside of a significant down candle, creating a vacuum in trading within that price range.
What significance does the down candle to the left of the fair value gap have?
-The down candle to the left of the fair value gap signifies that the price had previously traded up into the range, indicating buy side liquidity had been offered and then taken, which is crucial for understanding the formation of the fair value gap.
How does the concept of fair value gaps relate to trading strategies?
-Fair value gaps are significant in trading strategies because they represent areas where price is expected to eventually trade back into, filling the gap. Traders can use this understanding to anticipate and capitalize on price movements that seek to fill these gaps.
What is the importance of the 105.15 to 105 big figure price range in the context of the fair value gap?
-The 105.15 to 105 big figure price range is important because it represents the area where buy side liquidity was previously offered and taken, and it is not the focus of the fair value gap. Instead, the focus shifts to the lower area between 105 big figure down to 104.75, which is the actual fair value gap.
Why is it important to study fair value gaps on the specific time frame they occur?
-Studying fair value gaps on the specific time frame they occur is important because it provides the accurate context for the gap. While gaps can be broken down into smaller time frames, they may appear as liquidity voids with multiple candles creating the open space of range.
How can the concept of fair value gaps be applied in a range-bound market?
-In a range-bound market, fair value gaps are particularly useful as they can signal potential areas for price reversals or continuations. Traders can look for opportunities to enter trades when the price approaches these gaps, anticipating a return to fill the gap.
What is the significance of the price movement from the low to the close of a candle within a fair value gap?
-The price movement from the low to the close of a candle within a fair value gap indicates that buy side liquidity was offered and accepted at that range. This information is crucial for traders to understand the potential for price to return to that range to fill the gap.
How do liquidity pools and liquidity voids relate to fair value gaps?
-Liquidity pools and liquidity voids are related to fair value gaps in that they can both contribute to the formation of gaps. A liquidity pool can lead to a price run that creates a gap, while a liquidity void can occur when there's a lack of trading activity in a specific price range, which can also lead to a fair value gap.
Outlines
📈 Understanding Fair Value Gaps in Trading
This paragraph introduces the concept of 'fair value gaps' in trading, which are price ranges where one side of the market liquidity is offered but not matched, creating a vacuum of trading or a price gap. The speaker uses a euro dollar daily chart to illustrate a fair value gap, highlighting a specific blue shaded area that represents a 20 pip range. The significance of this gap is explained by referring to the candlestick patterns on either side of the gap, indicating previous buy side liquidity. The speaker explains that the fair value gap is a range that has been traded up into once, suggesting potential future price movement to fill the gap.
🔍 Analyzing Fair Value Gaps on Different Time Frames
The second paragraph delves deeper into the study of fair value gaps, emphasizing that these gaps are specific to the time frame being analyzed. It suggests that on smaller time frames, what appears as a fair value gap on a larger time frame might show as a 'liquidity void', where multiple candles create an open space. The speaker uses a four-hour chart to demonstrate how price eventually trades back up into the fair value gap, filling it in. The concept is further explained with the idea that once the sell side liquidity is taken out, as evidenced by a price drop below a previous low, the market is expected to fill in the gap. The paragraph also touches on the idea of 'turtle soup' or false breaks below old lows as part of the trading strategy.
📉 Observing Real-Time Fair Value Gap Filling
In this paragraph, the speaker focuses on a real-time example of a fair value gap being filled. They discuss a specific price level, 104.75, and how it was pierced, creating a liquidity pool and running buy stops. The discussion includes the observation of price action on a 5-minute chart, highlighting how the market trades through the level twice, creating gaps and filling them efficiently. The speaker also explains how the market's movement can be anticipated based on the previous high and the fair value gap, using the 15-minute chart to illustrate the point. The paragraph concludes with a detailed look at the price action and how it efficiently fills in the gaps, providing insights into liquidity pools and voids.
🚀 Price Action and Liquidity Delivery Efficiency
The final paragraph wraps up the discussion by connecting the concepts of liquidity pools, voids, and fair value gaps. It uses the 15-minute chart to show how price action efficiently fills in gaps, creating a 'perfect delivery' of price. The speaker points out specific instances where the market's movement matches the expected liquidity delivery, highlighting the efficiency with which the market operates. The paragraph also discusses the potential for selling off positions when the market reaches certain levels, anticipating a run of sell stops below a low. The speaker assures that more detailed scenarios and content will be provided in the upcoming study notes and supplementary teachings.
Mindmap
Keywords
💡Fair Value Gap
💡Liquidity
💡Price Gap
💡Candlestick Chart
💡Pip
💡Liquidity Void
💡Order Blocks
💡Breakaway Gap
💡Turtle Soup
💡Range Bound
Highlights
Introduction to the concept of 'fair value gaps' and their significance in trading within a range.
Definition of a 'fair value gap' as a price range with a liquidity void on lower time frame charts.
Explanation of how price gaps create a vacuum of trading, leading to actual price gaps.
Identification of a 'fair value gap' on a euro dollar daily chart, marked by a blue shaded area.
Discussion on the significance of the gap and the market liquidity offered on either side of it.
Analysis of a specific candlestick pattern that indicates the presence of a fair value gap.
Explanation of how the range between two specific price points is not of concern due to previous trading activity.
Identification of buy side liquidity offered on two candles framing the fair value gap.
Delineation of the fair value gap as a specific price range left open without trading.
Emphasis on the importance of studying fair value gaps within the context of the specific time frame being analyzed.
Illustration of how smaller time frames may show a liquidity void where the gap is indicated on a higher time frame.
Description of the expected market behavior to fill in the fair value gap due to the nature of price action.
Analysis of a four-hour chart to observe the price levels and the potential for a liquidity run on sell stops.
Discussion on the expectation of price to return to fill in the fair value gap after a sell side liquidity run.
Observation of price action that confirms the filling of the fair value gap and the completion of a trading idea.
Highlight of the profitability and probability of trading fair value gaps and double tops in the market.
Advice on the type of trading to focus on during range-bound market conditions, specifically looking for stops and fair value gaps.
Overview of the educational content and supplementary teachings planned for the month of December to enhance understanding of the concepts.
Demonstration of the overlap between liquidity voids and fair value gaps using a five-minute euro dollar chart.
Analysis of a specific price level being pierced and its implications for liquidity pools and fair value gaps.
Explanation of the concept of efficiency in price delivery and how it relates to the filling of gaps in price action.
Identification of a perfect delivery of price and the subsequent trading opportunities that arise from it.
Conclusion on the importance of understanding the interplay between liquidity pools, voids, and fair value gaps for effective trading.
Transcripts
we'll be dealing specifically with the
reinforcing of fair value gaps
and it's a concept of trading inside the
range
okay what is a fair value gap
it is a range in price delivery where
one side of the market liquidity is
offered and typically confirmed with a
liquidity void on the lower time frame
charts in the same range of price
price can actually gap to create a
literal vacuum of trading thus posting
an actual price gap
okay let's take a look at a
euro dollar daily chart
okay and i'm going to ask you where do
you see an example of the fair value gap
okay i'm going to draw your attention to
it here
it's a blue shaded area here
on the daily chart let me explain to you
why i'm shading in that specific area of
price
it's about a 20 pip range
on the daily
but inside of that
blue shaded area
that is what is common referred to in my
work as a fair value gap
so take a look at what makes
that gap so significant
as you can see here the candle
to the
left
of the down candle we're looking at that
comprises the fair value gap
that's this candle here
okay and to the left of that we have the
higher
bearish candle
and i'm drawing attention to the fact
that it has a
down close but it's come off the low
okay so we're looking at the low up to
the close that little wick in there
if you take that same range okay and you
look at our
down candle that created that fair value
gap on the daily chart
that range between
105 15
to approximately 105 big figure
inside our down candle and in this
candle here that's highlighted from the
low
to the
close
that price range has been traded
up into
once already delivering the buy side
liquidity in other words on this
candle's low up to the close price
had come off that low
so if it came off that low to have a
higher close on that candle that means
the buy side liquidity had been offered
on that range between 105 15
to 105 big figure
so that means when we look at the down
candle
that makes the fair value gap we're not
concerned with the 105 15 to 105
big figure price range so we're going to
be drawing our attention to that low
here
and we'll draw that
out in time but let's now look at the
other candle
that frames our fair value gap
the next area
at which we see buy side liquidity
offered
is from this green candle or up close
candle to the right
of our down candle that makes the fair
value gap
the open to the high on this candle has
offered by side liquidity as well so we
have
seen price offered on the up
movement
or buy side liquidity
on two candles one to the left of our
fair value gap creating down candle on
the daily chart and one candle to the
right of it where we saw price move
higher
in portion of that down candle
so we have a range left that's open
and it specifically is this area right
in here
so we're delineating
the low of the previous candle and the
high of the count to the right of the
down camera that creates that little
pocket of space
so between
105 big figure
down to
104.75
about 25 pips
that is our
fair value gap and it's been left open
there's been no trading outside of the
movement of that range except for that
down candle
and no up movement at all on this time
frame
now when we're looking at fair value
gaps
okay it's important to remind you that
if we're studying a specific time frame
the gap occurs on the time frame you're
looking at
you can break this down further into
smaller time frames but in the smaller
time frames you'll probably end up
seeing a liquidity void
where the gap would be indicated here on
this time frame on a lower time frame it
would many times appear as a liquidity
void where it's multiple candles that
create that open space of range
okay so now we have our daily chart here
we have our specific levels in mind that
we're watching and the two little line
segments delaying one candle is low and
one candle is high in between those two
reference points we have that big down
candle and the exposed area in between
that is the fair value gap that only the
cell side liquidity has been offered so
imagine that paint brush analogy i've
used many times in the past
on the down candle that creates the
lowest low here
there's a range with the candle before
it and the candle after it
where it has left a pocket of porous
price action or only delivered on the
downside
we're going to expect price to
eventually want to trade back up into
that little gapped area
so this area in here that's where we're
looking to see it fill in
that's the nature of a fair value gap
so when we look at price and we're
zoomed in a little bit now here with a
four hour chart
okay and you can see that the two
specific price levels again are
delineated as well
and we have a low
delineated
for potential liquidity run on sell
stops below the low
price does in fact go down below that
previous low
and well now we can expect to see what
form
a turtle suit or false break below an
old low
why would we reasonably expect it to go
back up to fill in that gap well because
we've already taken the sell side
liquidity out
by running an old low
we have equal highs here delineated also
on our chart on a four hour basis and
right above those equal highs we have
our fair value gap
eventually price does in fact trade back
up closes the fair value gap in
that trade or that idea is now complete
while it doesn't look like a great deal
of
money or pips offered it's a very highly
profitable and probable
condition in the marketplace where we
can see these fair value gaps and
double tops where buy stocks will be
resting above it and if you see a
turtle soup run below an old low you're
in a range
this time of year going into the end of
the
2006 trading year going into the
holidays uh trading is going to be range
bound and when you're in a range bound
consolidation type format or profile for
the marketplace this is the style
trading you want to be doing looking for
stops and looking for fair value gaps so
it was well over 100 pips of a move and
it only took about two days to to
complete that little price swing
and in fact this range
of price action in the form of a fair
value gap was actually detailed to you
in the beginning of this week
where we delineate it on the daily chart
the fair value gap as outlined here
and on the daily chart you can see it's
been filled in here
so while there's a lot of information
about fair value gaps and breakaway gaps
and measuring gaps that's going to be
coming your way in the form of the
december study notes
just understand that everything has been
shown here is reversed
for buy side liquidity runs where the
market will come back and closing a fair
value gap that's below the marketplace
to seek to fill in the sell side
liquidity
i want to take a quick look at something
else because i mentioned
that the gaps fair value gaps liquidity
voids
order blocks and liquidity pools they
kind of overlap a lot of in a lot of
different ways that you're probably not
aware of yet and that's what the benefit
of having the pdf files
study notes and also the supplementary
teachings that's going to happen next
week monday through friday while we're
away from live trading and live sessions
with the ict mentorship you will be
getting a daily video supplementing
these specific
techniques and concepts for the month of
december so to help you
really dial in on the concepts going
forward so that we are prepared and
primed for the content for january 2017.
but i want to take you back over to the
charts and give you something by way of
understanding the overlap of
liquidity voids and fair value gaps
okay folks we're looking at at 104.75
level
i have the charts trained in on a five
minute euro dollar
and we're seeing the very moment that
that 104.75 level was
pierced here
on the 19th this is the second time it
trades through
that 104 75 level
and i want to just draw a special
attention to
this area up here
okay
and now i'm going to show you what it
looks like when we have a
a run above an old high
which is what this is 104.75
it's also run on liquidity in the form
of a liquidity pool
so it's running buy stops
but also
it's hitting that fair value gap also so
straight into the fair value gap
and i said in lower time frames many
times this will create a liquidity void
you see a movement lower here on this
candle
and then we have another candle here
look what happened
the next candles open is down here
so you have this gap in here
so price trades up into that and closes
that in right there
see that
price then
moves lower
significant break lower
and then lower
and ultimately trading through
to where the cell stops were mentioned
earlier
okay let's take a look at it on a
15-minute basis
here's the
first time it trades up into that 104 75
level
closing that fair value gap
and then here's the second time it
trades up into it running out the
previous high
the previous high this time was at
104.77
this candle's high comes in at 104.78
so it trades to it just by one pip
now watch the difference here
we have a down candle here a lot of
movement lower but it comes off that low
watch what happens now
we gap
we get from this candles close
104 72 to an opening
on this candle
of 104 70. now it's only two pips
difference but that creates a what
a gap
so we can be a seller
at a more refined price level mentioned
and earlier time we said that we could
be a seller at 104.70
on a limit
when price trades back up to that level
if it doesn't give us an opportunity to
go on a limit we can trade it right as
it hits it
live it can be in front of the charts
right there there's your cell now here's
the thing look at the body's clothes
on this candle right here the close is
104.72
that's exactly the high on this candles
close 104.72 the wick trades through the
body
but the bodies of the candle
completely close in here so this gap
between these two candles these two
black down candles
this gap in between the bodies have
perfectly been filled in with this up
candle so this is exactly what i'm
referring to as efficiency in terms of
the price delivery
if this movement lower has been offered
on the downside
okay now think look closely this candle
is high
comes in at
104.78
the close is at 104.75 the next candle
it opens
at 104.76 i'm sorry 104.74 and then it
creates a high
at
104.76
so it moves two pips up so from the
opening
to the high is buy side liquidity
offered
then it trades down for a down close
then we gap down here
there's a gap of buy side liquidity from
these two candles from this candle's
opening
that's exactly where this price goes on
the upside from the open to the high the
open is 104.63 the high is 104.74
which is the opening here
104 74. that's the last point at which
the buy side liquidity is offered on the
up movement then it's all down from the
opening
it fills in that perfect
delivery of price right there
and then at that moment when you see
this live
you can be a seller at that moment
and price does exactly
what we mentioned earlier when we're
looking at the higher time frame
this delivery here price
from this candle is low up to the close
buy side was offered here and buy side
was offered from the opening to the high
here so there's a gap closure here on
all the downside movement here so this
has all been closed in so efficiently we
could look for
this range being delivered lower
we have to consider back here where
price was delivered on the buy side here
so this low
comes in at 104.55
so if we drop that down to there 104 55
that's where the last point at which the
low had traded up
to the close so buy side liquidity has
been delivered
here it's all sell side liquidity at
this moment here it's all sell side now
nothing over here
until we get over here
so we created a gap down here
price trades up hits it here hits it
here
we could be a seller at 104.55 or 104.50
looking for a move down below 104
15 to 104 10.
there's your run
right there
perfect delivery of price
hits it here hits it here
look at the high on that candle
104 55.
104.55
the low on this candle 104 55. the buy
side all green candles up then it comes
down so this is all efficiently traded
it's a full block of delivery deficiency
up and down both ranges on both sides of
the delivery of price dubai and the
south side have been offered in here
from this low to this high
once we break this low here we're all on
sell side now
it comes right back to it here
perfect delivery efficiently
priced at 104
55
does it twice
time to sell it off and wait for it to
run the cell stops below this low
and this low down here let's just put a
line on it so you can see
right there
and
watch the delivery
boom
perfect so perfectly delivered down into
the cell stops below the low lows
so hopefully this has been a little bit
more
insights into how the liquidity pools
and liquidity voids
and fair value gaps draw together in an
overlapping
scenario but again there'll be a lot
more scenarios to outline in your pdf
file for the summer's content
so i wish you good luck and good trading
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