Overview
This lecture introduces the concept of fair value gaps (liquidity voids/imbalances) in trading and explains their significance for identifying market retracements and potential trade opportunities.
Introduction to Fair Value Gaps
- Fair value gaps, liquidity voids, and imbalances all refer to the same concept in trading.
- These terms describe a price range where there are no opposing buy or sell orders.
- A fair value gap occurs after a strong price move up or down with little resistance in the opposite direction.
Why Fair Value Gaps Matter
- Fair value gaps help traders identify areas where price may retrace during a trend.
- They indicate zones where market makers can execute orders due to the lack of opposing liquidity.
- Using fair value gaps provides more confidence than relying only on support and resistance levels.
Application in Trading
- Fair value gaps are mainly used to determine likely retracement zones, not as direct entry signals.
- Traders can look for a break of structure on a lower time frame after a gap is filled to find entry points.
- This approach can be applied across any time frame and market, supporting various trading styles (scalping, swing trading).
Integrating Fair Value Gaps with Other Concepts
- Combine fair value gaps with liquidity sweeps and break of structure for high-confluence trade setups.
- More confirmations based on real market activity increase the reliability of trades.
- Understanding and using these building blocks enables more effective and versatile trading strategies.
Key Terms & Definitions
- Fair Value Gap (Liquidity Void, Imbalance) — A price range with a lack of opposing buy/sell orders, often seen as a large candle with little resistance.
- Liquidity Sweep — When the market takes out existing liquidity (orders) at specific price levels.
- Break of Structure — A change in market trend identified on a lower time frame, used to confirm trade entries.
Action Items / Next Steps
- No formal homework; do something productive after the lecture (e.g., take notes, exercise).
- Next lecture: how to spot fair value gaps and discipline strategies for traders.