Fair Value Gaps

Fair Value Gaps are areas where the body of the middle candle is in between the high and low wicks of the previous and next candle. This can be a hint that the price might either hesitate or surge when it revisits this area of the middle body candle.

These gaps are useful because they indicate spots where the price might make significant moves again, either continuing in the same direction or reversing. It’s like a map highlight, pointing traders to potential opportunities to enter or exit trades around these gaps.

Bullish Fair Value Gaps +FVG

Positive Fair Value Gaps are areas where the price moved up sharply, leaving a gap below that wasn't retested by market prices before advancing.

Formation:
A +FVG forms when price level moves significantly higher level without the prices in between being touched.

Trading Significance:
In bullish scenarios, such gaps are often considered potential future support zones. Traders may anticipate that if prices return to this gap, the area might provide support, leading to a rebound or continuation of the upward trend.

Strategic Use:
These gaps are entry points for long positions, anticipating that the price will respect the gap's lower boundary as support. Stops can be placed below the gap to manage risk, betting on the gap's psychological and technical significance to the market.

Bearish Fair Value Gaps -FVG

Negative Fair Value Gaps are useful for identifying where the market has shown a strong bearish sentiment, and can guide you where potential selling opportunities may arise if the price revisits these areas. These are areas where the price has moved down sharply, leaving a gap above that wasn't retested by market prices before descending further.

Formation:
A -FVG is formed when price descends from one price level to a lower level without the prices in between being touched.

Trading Significance:
In bearish scenarios, such gaps are often considered potential future resistance zones. You may anticipate that if prices return to this gap, the area might provide resistance, leading to a rejection or continuation of the downward trend.

Strategic Use:
These gaps as entry points for short positions, anticipating that the price will respect the gap's upper boundary as resistance. Stops can be placed above the gap to manage risk.

Order Blocks with Fair Value Gaps

For strategic approaches combining Fair Value Gaps (FVGs) and Order Blocks (OBs), you'll want to focus on how price interacts with both these elements to determine optimal entry points. Here’s how you can interpret the price action with respect to both OBs and FVGs:

Entry Inside the Fair Value Gap (FVG)

Opportunity for Entry:
Entering inside an FVG often presents an opportunity to capitalize on the momentum as the price seeks to fill the gap. This can be particularly advantageous in fast-moving markets where the price is quickly retracing.

Higher Risk and Reward:
While entering inside an FVG might offer earlier entry points and potentially larger gains if the gap is filled completely, it typically involves a higher risk. The price might not fully fill the FVG or could reverse before doing so, making stop placement more challenging.

Stop Placement:
When entering within an FVG, placing a stop loss can be less straightforward. Ideally, the stop should be outside of the FVG to protect against the failure of the gap to fill, but this might also increase the potential loss.