Fair Value Gaps and Liquidity Voids in Trading
Introduction
- Location: Miami
- Purpose: Explanation of fair value gaps, liquidity voids, and imbalances in the market.
- Context: This is part of a boot camp series for trading; video split into three parts for better understanding.
Main Concepts
Fair Value Gap, Liquidity Void, Imbalance
- Definition: Essentially the same thing. Lack of orders within a certain price range in the market.
- Nature:
- Upside: No sell orders, leading to a large upward move.
- Downside: No buy orders, leading to a large downward move.
Importance in Trading
- Trade Confidence: Helps in making trades based on actual market confluence and orders being filled rather than just support and resistance levels.
- Market Maker Behavior: Market makers know areas with lack of liquidity and execute orders within those gaps.
Practical Application
Benefits of Understanding Fair Value Gaps
- Predicting Retracements: Helps identify where price might draw to during retracements.
- Market Structure: Useful for confirming breaks in market structure, especially on smaller time frames within a larger trend.
Strategy Implementation
- Fair Value Gaps for Retracements: Not typically used for entries but to predict price draw areas or secondary entries.
- Using Smaller Time Frames: Spotting break of market structure on smaller time frames after identifying larger fair value gaps.
- Trend Alignment: Ensuring trades are aligned with the overall trend.
Example Scenario
- Uptrend: Spotting a fair value gap, waiting for retracement, confirming with a break of structure on a lower timeframe, then executing the trade.
- Versus Traditional Support/Resistance: More logical and safer as opposed to trading merely based on static support/resistance levels.
Key Takeaways
- Simplification: Trading can be simplified by understanding and applying the concept of fair value gaps and liquidity voids logically.
- Flexibility: The approach works on any time frame and with any financial instrument.
- Confluence: Multiple confirmations (like liquidity sweeps and breaks of structure) combined with fair value gaps lead to higher probability trades.
Final Advice
- Balance: Balance work and fun. Working non-stop can lead to burnout.
- Stay Productive: Even in downtime or vacations, staying productive can boost confidence and sense of accomplishment.
- Discipline: Upcoming focus on discipline and exercises for better market behavior.
Homework
- Action: Do something productive and then something fun. Examples: Take notes, exercise, engage in activities that push you out of your comfort zone.
Next Steps
- Topic for Tomorrow: Discussion on discipline and tips for staying disciplined in the market.
Conclusion: Understand and use fair value gaps to make informed trading decisions.
Outro: Stay productive and balanced. See you in the next session!