Overview
This lecture recaps the concept of fair value gaps, demonstrates real trading examples using them, and explains how they integrate with other concepts like liquidity sweeps and break of structure.
Fair Value Gap Recap
- Fair value gaps (FVG) are price imbalances where the market has not traded sufficiently.
- FVGs act as zones where price may return before continuing in the original direction.
- They are identified when a candlestick's wick does not overlap with the previous or next candlestick’s wick.
Integrating Concepts
- Combine trend, liquidity sweep, break of structure (BOS), and FVG to form trade setups.
- Look for FVGs after a BOS for potential retracement entries.
- Use higher time frame BOS and FVGs for context, then enter on lower time frames with additional confirmation.
Example Trade Setups
- Wait for a higher time frame BOS and FVG to form.
- After price enters the FVG, scale down to a lower time frame and wait for BOS as entry confirmation.
- Set stop loss above recent highs/lows and target previous liquidity or accumulation zones.
- FVGs are best used as confirmation and retracement tools, not as sole entry triggers.
Multiple Time Frame Analysis
- Use FVGs across all time frames; context from higher time frames increases probability.
- Lower time frame BOS after FVG fill signals entry in the expected direction.
- Examples were shown on markets like S&P 500, GBP/JPY, GBP/USD, and gold.
Strategy Building Blocks
- Key steps: liquidity sweep ➔ BOS ➔ FVG fill ➔ BOS on lower time frame ➔ entry.
- Use FVGs as part of a larger strategy, not in isolation.
- Practice and experience are needed to spot FVGs and build confidence in live markets.
Key Terms & Definitions
- Fair Value Gap (FVG) — A price range where little to no trading occurred, often attracting price to fill the gap.
- Break of Structure (BOS) — When price invalidates a previous high or low, indicating a trend shift.
- Liquidity Sweep — Rapid move to capture stop orders near highs/lows, often preceding reversals.
- Order Block — Area where institution-driven trades left a strong footprint, upcoming in next lessons.
Action Items / Next Steps
- Review previous lectures and bootcamp videos on liquidity sweeps, BOS, and FVGs if unclear.
- Practice identifying FVGs and their role in live and historical charts.
- Prepare for next lesson on order blocks.
- Continue working on trading discipline and complete any outstanding homework.