Overview
This lecture introduces the concept of fair value gaps (liquidity voids/imbalances) in trading, explaining what they are, their significance, and how they can improve trade decision-making.
Introduction to Fair Value Gaps
- Fair value gaps, liquidity voids, and imbalances all refer to the same market concept.
- These occur in price ranges where there are no opposing buy or sell orders.
- Large, rapid price moves (big candles up or down) indicate a liquidity void.
- Liquidity voids are the opposite of liquidity pools where orders reside.
How Fair Value Gaps Work
- A fair value gap forms during market moves when there’s no opposing liquidity to stop price movement.
- In an uptrend, a price surge with no sell orders creates a liquidity void.
- In a downtrend, a sharp drop with no resting buy orders signals an imbalance.
- When price revisits the gap, market makers can execute orders with less resistance.
Trading With Fair Value Gaps
- Fair value gaps are best used to identify potential retracement areas in trending markets.
- Traders can look for price reactions or break of structure on lower timeframes after a gap fills.
- This approach provides more market-based confirmation than traditional support/resistance strategies.
- The method can be applied to any timeframe or financial market.
Practical Insights and Application
- Combining liquidity sweeps, break of structure, and fair value gaps can provide high-confluence trade setups.
- These concepts serve as building blocks for a flexible trading strategy.
- Using multiple forms of confirmation increases trade confidence and reliability.
Key Terms & Definitions
- Fair Value Gap / Liquidity Void / Imbalance — A price range in which there are no opposing market orders, leading to swift price movement.
- Liquidity Sweep — When the market takes out orders clustered at certain price levels.
- Break of Structure — A price action signal indicating a change or continuation in market direction.
Action Items / Next Steps
- No formal homework; instead, do something productive or challenging after watching this lecture.
- Tomorrow’s topic: Techniques to spot fair value gaps and improve trading discipline.