Trading with Fair Value Gaps

Importance of Simple and Effective Entry Models

• Emotions play a significant role in trading decisions.
• Entry is the most emotional part of trading; a simple entry model can help manage emotions.
• Fair value gaps (FVGs) can be used to create a simple yet effective entry model.

Overview of the Four-step Process

1. PD Array (Price Delivery Array)
   • Align time frames to ensure consistency.
2. Fair Value Gap In (FVG In)
   • Look for an FVG entering the PD array.
3. Fair Value Gap Out (FVG Out)
   • Look for an FVG exiting the PD array, indicating a sharp turn.
4. Entry Variation (VAR)
   • Determine entry based on either a breakaway gap or an FVG.

Example 1: Bitcoin

• Fractal Nature: Trading models work the same across all time frames.
• Weekly Time Frame: Identified a weekly FVG.
• Daily Time Frame: Observed FVG for entry.
• Confirmation: More confirmation needed for shorter time frames (e.g., 1 minute).
• Manipulation: FVG in shows market manipulation and liquidity shift.
• Entry Variation: Identify if the FVG out is a breakaway gap or an FVG.

Example 2: USD/JPY

• PD Array: Same steps as Bitcoin, with a focus on different time frames (1 hour to 5 minutes).
• Fair Value Gap In: Observed 5-minute FVG entering PD array.
• Fair Value Gap Out: Observed 5-minute FVG exiting PD array.
• Entry Variation: Confirmed entry variation based on discount arrays and candle closes.

Example 3: AUD/CHF

• PD Array: Monthly PD array targeting certain highs.
• Time Frame: From 4 hours to 15 minutes.
• Double Confirmation: Preferred entry variation involving two FVGs.
• Retracement: PD array shows price control shift.
• Breakaway Gap: Entry based on the higher-close candle criteria.

Steps for Entry Variation

1. Is there a discount array above the FVG?
   • If yes, enter on the discount array.
2. Does the third candle close above the second candle's high?
   • If yes, enter on the creation of the FVG.
3. If neither: Enter off the FVG itself.

Conclusion

• Mechanical Guide: The four-step process provides a mechanical, repeatable entry method.
• Probabilities: Focus on the highest probability scenarios.
• Case Studies: Encouraged to send case studies for feedback via Twitter or Instagram.