Mastering Fair Value Gaps in Trading

The fair value gap one of the biggest trends going on in the trading space right now And there's a reason for that because of how well they work in the market But not all fair value gaps are created equal for instance this fair value gap ended up not working and this fair value gap did end up working. So why did this fair value gap work and this one didn't? Well, there's actually a secret technique I use to instantly tell me when a fair value gap becomes valid. And once you add this technique to your arsenal, you will instantly see your fair value gaps become more accurate. I am the chosen one. To begin, we first have to go over what a fair value gap actually is. We can have bullish fair value gaps and bearish fair value gap a fair value gap is simply when price moves up or down an insane amount Creating a huge candle the price moved up so quickly that it actually didn't give sellers enough time to counteract this movement creating an imbalance in the market naturally sellers will want to retest this zone You can mark a fair value gap by simply marking the candles top wick before the big move to the candles lower wick After the big move this zone is the fair value gap itself if you look at your chart you will see these gaps everywhere Oftentimes price will want to come back down to this zone fill the imbalance and retrace back up to test the highs again Which we can use to our advantage and profit off this move But if you've ever traded fair value gaps before you'll quickly notice it doesn't work a hundred percent of the time This is because you've probably traded an invalid fair value gap But what makes a fair value gap? valid? Well, there's actually six key factors that need to be true in order for a fair value gap to be valid. The first one is the fair value gap must be unmitigated. What I mean by that is since the whole point of a fair value gap is to have price surge and not give the opposite side a chance to react, this zone must not be tested in order for it to work. So here, right after the fair value gap was created, price came back down to it directly after, then continued to rise. So... if price came back down to the zone again, we would not consider this fair value gap valid as it's already been tested here. If you want a fair value gap to be valid, it must be unmitigated and not have been tested before. Moving on to point number two. The second way to see if a fair value gap is valid is by making sure to check the reaction of the candle inside the fair value gap. We want the reaction of the candle to either close inside of the fair value gap or for it to close in the direction of the zone. So here Here, the candle broke through the fair value gap and ended up closing below the gap. If this happens, this makes this gap invalid. What we want to see is something like this, where price closes in the fair value gap, giving us a safe entry. It's completely okay if a wick goes through the fair value gap like this, but ends up closing inside the gap. As long as the candle closes inside the gap or in the direction of the gap, we are good for an entry. Moving on to the third factor of a valid fair value gap. One way to make sure you're trading a strong fair value gap is by adding other confluences. One way to do that is through support and resistance. So here on the chart, Price made an untested bullish fair value gap. But if we look closely, we can see Price created a support over here. And it also just so happens to be right in the middle of the fair value gap. This is a great confluence and will raise the chances of the fair value gap to work. Same thing with bearish fair value gap. You want to find a prior resistance that coincides with the fair value gap. Find this and it'll will make your gaps a lot stronger. Moving on to factor number four. As I was saying before, some fair value gaps are stronger than others and have a lot more priority. An easy way to do this is to mark the fair value gaps by where they are on the chart. So here on this chart we have multiple bullish fair value gaps. The lowest fair value gaps will always be the strongest and have the highest priority, while the highest fair value gaps will be the weakest and have the lowest priority. So in a perfect scenario you should try to trade the lowest fair value gap possible. Same thing with bearish fair value gaps if you have multiple bearish fair value gaps on one chart the highest fair value gap should have the most priority this will help your chances of finding the one that works moving on to factor number five factor number five goes along with factor number four picking a fair value gap with the highest priority what you want to do is go on trading view and pick the Gann box tool right here go to the settings of it and make sure the price levels are zero zero point five and one this will give you something that looks like this If you have multiple fair value gaps on a chart, just grab this tool and mark from the low of the move to the high of the move. This will give you an easy way to see what fair value gaps to trade. In a perfect scenario, you should not be trading any fair value gaps that are in the upper portion of this tool. You only want to be trading gaps that are in the lower portion of this tool. Same thing with shorts, mark the high of the move to the low of the move. You only want to be trading fair value gaps that are in the upper portion of the tool. If you follow this step, you will only be trading high priority fair value gaps. Moving on to the sixth and final factor. But before that, I'm about to share an absolute gem with you. I made an email list where every time I enter a trade, I share my analysis on that specific trade and why I'm entering. I send this email every single Wednesday and Friday, and there are some absolute gems about the market in every email, including this trade I shared last week, which is of 27. The best part is, it's absolutely free to sign up and you can cancel anytime. If you want to sign up, I'll leave a link in the description. Go check it out. Okay, let's go back to the sixth and final step. When trading fair value gaps, you should have a break of structure before you sign up. the gap is made. A break of structure is simply when price breaks the high or the low that is previously made. So in this example price created a fair value gap, but it did not create a break of structure because it did not break this high right here. So we would not trade this gap. What we want is something like this. For bullish fair value gaps, price should break the high it previously made and while doing so it will probably create a fair value gap. This gap will now be valid because it did a break of structure at this high. So Same thing with shorts price must make a break of structure of the previous low before creating the gap if you combine all six of These steps together it will create the ultimate fair value gap And it will greatly increase the chance of respecting this zone so you can profit from it So here's a live trade example of doing so first we see price made this high So this will be our break of structure point we wait and make sure price breaks this high So we have a break of structure next we wait for a fair value gap to be created We then make sure this fair value gap is unmitigated and hasn't been touched before. So in this example, we're good so far. We then mark the highest priority gaps and the lowest priority gap. That way we can see which gaps we should be targeting. We then grab our gam box tool and mark from the low of the move to the high of the move. As you can see, this gap was created in the upper section of the tool, so we can remove this gap from our chart because we don't want to be trading it anyway. That leaves us with this gap. And if we look closely, we can also see there's a supply gap. support that just so happens to be right in the fair value gap. We then wait for price to come back down to this zone. Once it reaches this zone, we make sure the candle either closes in the zone or above the zone, which in this example price did exactly that and is starting to show that it respects this zone. All six of our criteria is met and we know this is a valid fair value gap and has a great chance of becoming a winning trade. We set our take profit at the high of the move and set our stop loss at the low of the candle that made this trade. this fair value gap. And just as we expected, price boomed right after touching this fair value gap and gave us a great, beautiful winning trade. Combine all six of these steps together and you'll instantly see your fair value gaps performing better. Hope you got some value from this video. See you next time.

And once you add this technique to your arsenal, you will instantly see your fair value gaps become more accurate. I am the chosen one. To begin, we first have to go over what a fair value gap actually is.

We can have bullish fair value gaps and bearish fair value gap a fair value gap is simply when price moves up or down an insane amount Creating a huge candle the price moved up so quickly that it actually didn't give sellers enough time to counteract this movement creating an imbalance in the market naturally sellers will want to retest this zone You can mark a fair value gap by simply marking the candles top wick before the big move to the candles lower wick After the big move this zone is the fair value gap itself if you look at your chart you will see these gaps everywhere Oftentimes price will want to come back down to this zone fill the imbalance and retrace back up to test the highs again Which we can use to our advantage and profit off this move But if you've ever traded fair value gaps before you'll quickly notice it doesn't work a hundred percent of the time This is because you've probably traded an invalid fair value gap But what makes a fair value gap? valid? Well, there's actually six key factors that need to be true in order for a fair value gap to be valid. The first one is the fair value gap must be unmitigated. What I mean by that is since the whole point of a fair value gap is to have price surge and not give the opposite side a chance to react, this zone must not be tested in order for it to work.

So here, right after the fair value gap was created, price came back down to it directly after, then continued to rise. So... if price came back down to the zone again, we would not consider this fair value gap valid as it's already been tested here.

If you want a fair value gap to be valid, it must be unmitigated and not have been tested before. Moving on to point number two. The second way to see if a fair value gap is valid is by making sure to check the reaction of the candle inside the fair value gap.

We want the reaction of the candle to either close inside of the fair value gap or for it to close in the direction of the zone. So here Here, the candle broke through the fair value gap and ended up closing below the gap. If this happens, this makes this gap invalid.

What we want to see is something like this, where price closes in the fair value gap, giving us a safe entry. It's completely okay if a wick goes through the fair value gap like this, but ends up closing inside the gap. As long as the candle closes inside the gap or in the direction of the gap, we are good for an entry. Moving on to the third factor of a valid fair value gap. One way to make sure you're trading a strong fair value gap is by adding other confluences.

One way to do that is through support and resistance. So here on the chart, Price made an untested bullish fair value gap. But if we look closely, we can see Price created a support over here. And it also just so happens to be right in the middle of the fair value gap.

This is a great confluence and will raise the chances of the fair value gap to work. Same thing with bearish fair value gap. You want to find a prior resistance that coincides with the fair value gap. Find this and it'll will make your gaps a lot stronger.

Moving on to factor number four. As I was saying before, some fair value gaps are stronger than others and have a lot more priority. An easy way to do this is to mark the fair value gaps by where they are on the chart. So here on this chart we have multiple bullish fair value gaps.

The lowest fair value gaps will always be the strongest and have the highest priority, while the highest fair value gaps will be the weakest and have the lowest priority. So in a perfect scenario you should try to trade the lowest fair value gap possible. Same thing with bearish fair value gaps if you have multiple bearish fair value gaps on one chart the highest fair value gap should have the most priority this will help your chances of finding the one that works moving on to factor number five factor number five goes along with factor number four picking a fair value gap with the highest priority what you want to do is go on trading view and pick the Gann box tool right here go to the settings of it and make sure the price levels are zero zero point five and one this will give you something that looks like this If you have multiple fair value gaps on a chart, just grab this tool and mark from the low of the move to the high of the move.

This will give you an easy way to see what fair value gaps to trade. In a perfect scenario, you should not be trading any fair value gaps that are in the upper portion of this tool. You only want to be trading gaps that are in the lower portion of this tool. Same thing with shorts, mark the high of the move to the low of the move.

You only want to be trading fair value gaps that are in the upper portion of the tool. If you follow this step, you will only be trading high priority fair value gaps. Moving on to the sixth and final factor.

But before that, I'm about to share an absolute gem with you. I made an email list where every time I enter a trade, I share my analysis on that specific trade and why I'm entering. I send this email every single Wednesday and Friday, and there are some absolute gems about the market in every email, including this trade I shared last week, which is of 27. The best part is, it's absolutely free to sign up and you can cancel anytime.

If you want to sign up, I'll leave a link in the description. Go check it out. Okay, let's go back to the sixth and final step. When trading fair value gaps, you should have a break of structure before you sign up.

the gap is made. A break of structure is simply when price breaks the high or the low that is previously made. So in this example price created a fair value gap, but it did not create a break of structure because it did not break this high right here. So we would not trade this gap.

What we want is something like this. For bullish fair value gaps, price should break the high it previously made and while doing so it will probably create a fair value gap. This gap will now be valid because it did a break of structure at this high. So Same thing with shorts price must make a break of structure of the previous low before creating the gap if you combine all six of These steps together it will create the ultimate fair value gap And it will greatly increase the chance of respecting this zone so you can profit from it So here's a live trade example of doing so first we see price made this high So this will be our break of structure point we wait and make sure price breaks this high So we have a break of structure next we wait for a fair value gap to be created We then make sure this fair value gap is unmitigated and hasn't been touched before.

So in this example, we're good so far. We then mark the highest priority gaps and the lowest priority gap. That way we can see which gaps we should be targeting.

We then grab our gam box tool and mark from the low of the move to the high of the move. As you can see, this gap was created in the upper section of the tool, so we can remove this gap from our chart because we don't want to be trading it anyway. That leaves us with this gap. And if we look closely, we can also see there's a supply gap. support that just so happens to be right in the fair value gap.

We then wait for price to come back down to this zone. Once it reaches this zone, we make sure the candle either closes in the zone or above the zone, which in this example price did exactly that and is starting to show that it respects this zone. All six of our criteria is met and we know this is a valid fair value gap and has a great chance of becoming a winning trade.

We set our take profit at the high of the move and set our stop loss at the low of the candle that made this trade. this fair value gap. And just as we expected, price boomed right after touching this fair value gap and gave us a great, beautiful winning trade.

Combine all six of these steps together and you'll instantly see your fair value gaps performing better. Hope you got some value from this video. See you next time.

Transcript for:Mastering Fair Value Gaps in Trading

Transcript for:
Mastering Fair Value Gaps in Trading