Transcription
Today's video is about a combination of fair value gaps and liquidity. It's a strategy with a very high win rate. However, there are a few points that you need to consider for successful trading. Stay tuned in the video and please like and subscribe to us.
But what is the meaning and essence of fair value gaps, or in short, FVG? When large institutions enter buying or selling orders with substantial amounts of money, due to the significant cash volume of these institutions, prices suddenly start to rise or fall sharply without price adjustment, forming what is known as an imbalance. This imbalance is referred to as a fair value gap.
Now, we come to the point of why FVG are important in transactions and why prices usually return to these areas again. The answer is quite simple: because prices suddenly move and not all orders from large institutions have been executed. Due to a large influx of money into the market, only a portion of these institutions' transactions have been completed. So, prices must return to these areas again for the remaining transactions to become active. However, for the transactions of these institutions to be activated, there needs to be a buyer or a seller. Here, we come to the second stage, which is liquidity.
But why does the liquidity zone form? If you are a buyer, you need someone to sell to you, and vice versa. If you're a seller, you need to find a buyer. That's precisely why the liquidity zone is created. By establishing consistent highs and lows, it encourages traders to place orders. When these highs and lows fail, stop-losses of traders become active. As the price reaches the desired area, large institutions acquire all the liquidity.
What confirmations are required for entering with this strategy? Initially, the formed FVG area should consist of three consecutive bullish or bearish candles. It means that even if one of the candles forming the fair value gap area is different, it will not be considered as a valid entry area. The second condition is the formation of the fair value gap area after a change of character, such that this change of character overlaps with the fair value gap area. It means if a candle that price breaks through that which forms the change of character, and because price reversal has passed out of the fair value gap area, or vice versa, it does not overlap with that area at all. This area is not suitable for trading. The final confirmation to enter the trade is to establish a liquidity zone just before the price reaches the fair value gap area. This liquidity zone adds more significance to the value gap area.
Now that all necessary confirmations for entering the trade are available, we consider the change of character candle that overlaps with the fair value gap area as the entry point, highlighted in blue. The first candle forming the fair value gap as the stop-loss. We wait for the price to reach that area, and this is a confident trade with good risk and reward. Following this, we will examine several charts for implementing this strategy in trading to become aware of potential mistakes.
Now, let's examine the entry conditions for trading on this chart. The fair value gap area is formed by three bullish candles, so the first condition is met. The subsequent condition involves the formation of the fair value gap area after a change of character, such that this change of character overlaps with the fair value gap area. These two conditions have also been met here. And the final condition is the formation of a liquidity zone before the price reaches the fair value gap area. Now, we consider the overlapped area as the entry point and also the first candle forming the fair value gap as the stop-loss, then wait for the price to reach that area. The buy trade failed.
But what's the reason for this failure? The reason is that the price had previously reached the fair value gap area. By observing the candlestick shadows in the liquidity zone, you can see that these shadows have interacted with the fair value gap area. This fact makes this area no longer suitable for entry. You need a clean area of fair value gap for entry. If the liquidity zone forms slightly above the fair value gap area, then we could enter into a trade by returning the price to the fair value gap area.
Let's go for the next chart. If you are a smart money trader, what do you do? You probably identify a break of structure and an order block on the chart and then wait for the price to reach that area, then enter a trade. And similarly, the stop-losses of those who had entered into the trade within the order block area become active.
What is the correct entry strategy? Three consecutive bullish candles, a change of character overlapping the fair value gap area, and a liquidity zone. It is sufficient to place a buy order and wait. Never rush into a trade. Regardless of the trading strategy you employ, strive to analyze the market correctly and enter the trade at the right moment. Take liquidity zones seriously to identify the proper entry point. These are large banks and institutions that, after activating trader stop-losses, gather all the market liquidity and move the price in the direction they desire.
In a chart where multiple fair value gaps are formed, you consider that area as an entry point that overlaps with the change of character. And even if one of the conditions is not met, we will not enter into the trade. In this chart, you can see that the change of character does not overlap with any of the fair value gaps, so even if you enter the trade, it will cause you a loss. Even if the change of character on this chart overlaps with the first area, we should not enter the trade because one of the constituent candles that formed a fair value gap was bearish.
Sure, delve into practice, repetition, and taking backtests to explore this strategy on the chart. If you find it beneficial, please like and subscribe to us.