Fair Value Gap (FVG) Explained: 3 Best Strategies Revealed

[00:00] the fair value Gap one of the most powerful Concepts in trading this exact strategy has led me to many profitable trades in my career but the problem is many Traders actually use it incorrectly causing them to lose money from it the

[00:14] most confusing part about trading the fair value Gap is figuring out which ones are most likely to work but here's the truth not all fair value gaps are equal some have a much higher chance of being profitable than others in this

[00:28] video I'll reveal the secret hacks to help you spot which fair value gaps have the highest chance of success and as a bonus I'll also reveal the top three trading strategies using the fair value gaps that I use to land consistent

[00:41] profits so without further Ado let's dive in first what is a fair value Gap a fair value Gap is a formation on a chart that involves price moving sharply towards One Direction forming a gap on the Candlestick often the price is then

[00:55] drawn back to the Gap like a magnet as it attempts to retest or fill the Gap Traders can then look to enter a position at the Gap aiming to profit as price tends to bounce off after retesting it to plot a fair value Gap

[01:09] you first need to identify a three candle sequence then look for a large candle between two smaller candles where the high of the first candle and the low of the third candle do not overlap with the middle candle the gap between the

[01:22] high of the first candle and the low of the third candle is called the fair value Gap next you can draw a rect handle on the chart to Mark the Gap this concept also applies to the bearish setups remember if there's no gap

[01:37] between the high of the first candle and the low of the third candle then there is no fair value Gap regardless of how large the second candle is all right so now you know how to spot and draw a fair value Gap however as I mentioned earlier

[01:51] not all fair value gaps are equal some have a much higher chance of giving you a profitable trade so now I'm going to share five hacks that I use to help you identify which fair value gaps are the most profitable number one to ensure

[02:04] that a fair value Gap has a high chance of success it needs to remain what's called unmitigated which means not tested and so whenever you see a fair value gap on a chart you need to make sure that it hasn't been retested by the

[02:19] price yet because the effectiveness of a fair value Gap decreases once the price touches it for the first time for example if you see a fair value Gap that forms but you also notice that the price has already retested it then it's no

[02:34] longer an effective fair value Gap another important thing to note is that the price shouldn't retrace too deeply to the point where it closes below the Gap if it does then the fair value Gap is also invalidated so the best fair

[02:48] value Gap entry is when the price hasn't retested it before and when it does retest for the first time make sure it doesn't break below the Gap number two whenever you spot multiple fair value gaps on one setup

[03:02] such as this example always prefer the ones with large size larger fair value gaps such as this one almost always work better compared to smaller ones because between buyers and sellers this means they are more likely

[03:18] to act as stronger areas of support or resistance moving on to number three if you found a setup with multiple fair value gaps that are about the same size and none stand out as sign iFly larger you'll need to filter them out based on

[03:32] their position the ones you use are the fair value gaps located in the lower portion of the move which usually has a higher chance of working but to do this more precisely you'll need a tool on a charting platform like trading view you

[03:47] can use the gam box tool you then go to settings and set the price levels to 0 0.5 and 1 to use the tool you drag it from the swing low to the swing high of the movement that contains multiple fair

[04:02] value gaps this line in the middle separates the fair value gaps and you should only focus on the gaps located on the bottom area and ignore the ones on the upper area same thing for shorts drag the tool from the swing High to the

[04:15] swing low and only focus on the gaps located on the top area number four a type of setup you should absolutely avoid is when a fair value Gap forms as the price approaches a major key level

[04:30] for example let's say you spot a bullish fair value Gap forming but when you look back you notice that there's a major resistance level above so it's best to ignore this fair value Gap this is because key levels could cause the price

[04:44] to be rejected and reverse from them which may invalidate our initial fair which may invalidate our initial fair value Gap moving on to number five fair value gaps that form after a break of structure are gold if you manage to spot

[04:57] these types of fair value Gap the they have one of the highest win rates compared to other setups to recap here's a quick explanation of what a break of structure is during an uptrend whenever the price

[05:10] breaks a previous High that's called a break of structure a previous High reached before the price pulls back or retraces let's say price moves up then dips slightly before moving up again

[05:25] this peak before the dip is called the previous high so when the price moves above this High making new highs it's called a break of structure similarly during a downtrend if the price breaks below the previous

[05:39] low that's also a break of structure and so to Circle back to our topic when a fair value Gap forms near and after a break of structure like this one it break of structure like this one it signals a high win rate setup in such

[05:53] cases the price has a higher likelihood of retracing to this Gap and bouncing from it so now that you've learned the five hacks to spot highquality fair value gaps let me share the best entry

[06:05] identified one the best entry point when trading a fair value Gap is to enter a trade right in the middle of the Gap to do that we use the same Gan fan tool from earlier drag it from the low of the fair value

[06:21] Gap to the high of the fair value Gap and so this Middle Point will be our entry next you wait for the price to retrace to the midpoint once it does you're good to enter the trade so you open a buy position and as for your stop

[06:36] loss set it at the break of the fair value Gap or the point of invalidation now I want to share the three Advanced strategies using the fair value gaps that I use to get consistent profits but before I do that I want to

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[07:38] number one the first strategy is called inversion gap which is a type of fair value Gap that has been previously broken now just because a fair value Gap has been broken once doesn't mean it's no longer useful in fact you can utilize

[07:54] it one more time as an inversion Gap as there's a possibility that price could reject the level once more on its next move here's how you can apply this strategy the first step is to look for a fair value Gap that has been broken this

[08:09] means the price has already moved through it once in this case we see this bullish fair value Gap that's been broken next wait for a retracement back towards that Gap this broken fair value Gap now acts as a resistance level once

[08:24] it retraces take a position opposite to the original direction of the fair value if it was a bullish fair value Gap open a short position now manage your risk by

[08:36] placing your stop loss just above the fair value Gap and aim for a take-profit level at twice the distance of your stop loss as the price reverses and hits your loss as the price reverses and hits your profit Target you secured a nice profit

[08:49] important note to remember inversion gaps typically only work once so if the price crosses the fair value Gap multiple times the setup loses its validity Advanced strategy number two in this

[09:02] strategy we're using fair value gaps in combination with the Fibonacci retracement tool if you don't already know Fibonacci retracement is a popular tool that uses horizontal lines to show areas of

[09:14] potential support or resistance in this strategy the 61.8% level on the Fibonacci tool also known as the golden zone is particularly important so to combine fair value gaps with the Fibonacci retracement we're

[09:30] using Confluence between them first you'll want to identify all the fair value gaps that exist on a setup once you've marked these gaps use the Fibonacci retracement tool apply it from the low to the high of the movement that

[09:44] the low to the high of the movement that has multiple fair value gaps next focus on the fair value Gap that's closest to the 61.8% Fibonacci level so this is the gap that we're interested in next just wait for the price to retrace that Gap

[09:59] once it does make sure the candle still closes within or above it such as a Miss example once our entry criteria are met you can enter a buy position then place a stop loss below the fair value Gap and set your take-profit target at two times

[10:14] set your take-profit target at two times stop- loss as you can see price bounced off the fair value Gap giving us a good profit Advanced strategy number three in this strategy we're combining fair value Gap trading with multi-timeframe

[10:28] confirmation first start by choosing a time frame preferably higher time frames like the 4-Hour chart next identify the long-term 4-Hour chart next identify the long-term Trend using the 200 period EMA indicator

[10:41] trading in the same direction of the long-term Trend if the price is above the EMA you only look for bullish fair value gaps if the price is below you only look for bearish fair value gaps in this example the trend is

[10:58] bearish so we'll look look for bearish fair value gaps we find one right here a large red candle with a gap between two smaller candles since the price hasn't retested it yet it's still unmitigated making it a potential

[11:12] setup next we wait for the price to retrace to the fair value Gap once it does we prepare for entry now relying solely on the midline of the fair value gap for entry can sometimes be insufficient as price May

[11:27] reverse from the gap before reaching it so we use another confirmation method multi-time frame analysis we zoom into a smaller time frame like the 1hour chart here we use a momentum indicator like the macd to help

[11:42] for confirmation so we wait for it to cross downwards once it does we can take a short position next place your stop- loss at the invalidation point of the fair value Gap and set your takeprofit at twice the

[11:55] size of your stop loss as you can see this trade ends up being profitable now here's a quick guide on which time frames to choose for multi-timeframe confirmation so as you can see trading

[12:08] the fair value gaps can be very profitable but for profitable strategies like this you would also need a good platform to execute these trades for you which is why I partnered with simple effects to make your trading easier

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[12:51] get more rewards as you deposit more so big thanks to simple effects for helping me make this video possible and that's how you can use fair value Gap to gain an edge in trading however understanding the fair value Gap is just one piece of

[13:04] the puzzle to truly Master the full smart money Concepts trading you also need to understand order blocks that's why you should check out this video where I explain in detail how to combine fair value gaps with order blocks to

[13:16] fair value gaps with order blocks to find high-profit trade entries