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Key Insights on Fair Value Gaps

Mar 30, 2025

Lecture Notes: Understanding Fair Value Gaps

Introduction to Fair Value Gaps

  • Misconception that all Fair Value Gaps (FVGs) are the same.
  • Importance of the third candle in determining the behavior and outcome of FVGs.

Basic Understanding of Fair Value Gaps

  • FVG is identified in a three-candle pattern.
  • Gap is created when the wicks of the first and third candles do not overlap.
  • Focus on the third candle to predict market movement.

Importance of the Third Candle

  • The third candle can provide answers to:
    • Will price retrace back to the FVG?
    • Will the FVG hold?
    • How will the FVG react?

Types of Fair Value Gaps

  1. Type with Big Candle Displacement

    • Third candle shows price rejection to the upside.
    • High buy momentum; less likely for price to return and fill gap.
    • Lower time frame analysis shows immediate filling on smaller scale.

  2. Comparison of FVGs in Different Scenarios

    • FVG filled quickly vs. FVG taking longer time to fill.
    • Impact of third candle size and momentum on gap filling speed.

Observations and Rules of Thumb

  • Immediate FVG Filling: Smaller third candle, less rejection.
  • Delayed FVG Filling: Larger third candle, significant rejection.
  • Price Action: Determines if FVG will be respected or filled immediately.

Market Examples and Analysis

  • Forex and Index Examples
    • NASDAQ and Forex case studies illustrate FVG behavior.
    • Small wicks on third candle lead to quicker FVG fills.
    • Larger rejections delay fills.

Practical Application

  • Recognize FVG patterns and third candle behavior.
  • Make informed predictions on whether FVG will fill or hold.
  • Use third candle as a key indicator in trading strategies.

Conclusion

  • Third candle analysis provides insight into market direction.
  • Predictive power of third candle helps in strategic decision-making.

Additional Resources

  • Mention of Blue Guardian for managing trading risks.
    • Offers tools to avoid max daily loss and prevent over-trading.
    • Unlimited time evaluation and low profit targets.

Note: These notes summarize the key points and discussions from the lecture on Fair Value Gaps, emphasizing the critical role of the third candle in shaping trading outcomes. Keep these notes as a guide to enhance understanding and application of the FVG concept in trading scenarios.

Full transcript