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Market Mechanics Ep 9: Fair Value Gaps / Imbalance — Transcript

by Brad Goh (The Trading Geek) · 5,771 words · 881 segments · language en · Watch on YouTube

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0:00Have you ever seen price explode in one
0:02direction and then suddenly coming back
0:05into the same area before continuing?
0:08Most traders think that that's just a
0:10random pullback, but a lot of the time
0:13the market is just coming back to fill
0:16an imbalance.
0:18And if you understand that, you start
0:19seeing the chart very differently.
0:22So today, I want to break down one of
0:24the most important concepts in price
0:26delivery and that is imbalance, or which
0:29is also known as inefficiency, which is
0:31also known as the fair value gap.
0:34Because when price move very aggressive
0:36in one direction, it's going to leave
0:38behind an inefficiency in price in the
0:42market. And understanding that can help
0:44you anticipate where price may retrace,
0:47react, or continue from. In the first
0:51lesson, we talked about how the market
0:53have to move from phases of imbalance to
0:56balance to imbalance to balance again,
0:58right? Because the market is actively
0:59seeking fair value. That's what this
1:03concept is about, right? Imbalance is
1:05basically an inefficient area in price
1:09where one side was so aggressive that
1:12the market moved too quickly and did not
1:14trade efficiently through that zone.
1:18So it's basically an area where price
1:20moved so fast, so far that it left
1:23behind unfinished business.
1:25Right? Just like in this case right
1:26here, we have a bullish candlestick
1:28right here. Next thing you know, huge
1:30bullish candlestick signaling there's a
1:32lot of buying pressure, a lot of buying
1:34momentum, and then the momentum starts
1:36slowing down. All right? When this
1:38happens, this pretty much tell us that
1:39there's an imbalance right here, and
1:42this is the gap that smart money has
1:44left behind because they've pumped price
1:46up so fast, right? That it just didn't
1:49have any pause whatsoever.
1:51So a fair value gap, it's basically one
1:54of the most clearest visual forms of
1:57imbalance. It usually appears in like
2:00this three candlestick sequence just
2:02like this. Where the first candlestick
2:05leave one side of the range, the second
2:07candle expand aggressively either to the
2:10upside or to the downside, and then the
2:12third candle leave a gap between the
2:15wick of candlestick number one and the
2:18wick of candlestick number three forming
2:20your fair value gap.
2:23Okay, so once again, let me just slow it
2:25down a little bit. Basically, when you
2:28see like a big bullish or bearish
2:29candlestick just like this, what you
2:31want to do is to find the first
2:33candlestick that was before that big
2:36juicy candlestick, and the candlestick
2:39that came after that big juicy
2:41candlestick, and you find the low of the
2:44candlestick that comes after that and
2:46the high of the candlestick that comes
2:48before that, and then draw a box just
2:50like this, and this is where you got
2:52your fair value gap. And this gap shows
2:55you that price has moved very quickly
2:57through that area itself.
2:59So a bullish fair value gap, just like
3:02this, is a strong move to the upside
3:05which leave inefficiency below.
3:07A bearish fair value gap is a strong
3:09move to the downside that leave
3:11inefficiency above.
3:14Okay, so once again, you must understand
3:16the logic behind the fair value gap. The
3:18reason why it form in the first place is
3:20because there was such an aggressive
3:23amount of buying
3:26or selling pressure.
3:29And as a result, that caused price to
3:31expand very, very quickly. So this
3:34pretty much tell us that at this point
3:35of time, there's so many sellers in the
3:37market that there was so little buyers
3:39in the market which caused price to just
3:41move very aggressively to the downside.
3:43Therefore, the market is counted as
3:45inefficient at this point of time.
3:49Okay, so when the market move too
3:51aggressive just like this, it does not
3:54always price everything fairly on the
3:55way up or down. So as a result, it's
3:58just going to leave behind a gap which
4:00is known as our imbalance or
4:02inefficiency, also known as a fair value
4:04gap. Right? So there's a lot of
4:05different names for it.
4:07Now,
4:08after this gap is formed, we are
4:11expecting the market to actually pull
4:13back to this gap. Now, why? Because
4:15remember when we talked about how the
4:17market move from phases of imbalance to
4:20balance to imbalance to balance because
4:23it's actively seeking fair value. So
4:25after a huge imbalance to the downside,
4:28we're expecting price to pull back to
4:30fair value, right? Going to the next
4:32phase, which is the balance phase before
4:34the next phase of imbalance again, and
4:37then balance and then imbalance and
4:38balance and balance and
4:40Because the market is often seeking
4:43efficiency, seeking fair value. Right?
4:46So this revisit in price can act as like
4:49a retracement where price is potentially
4:52mitigating the fair value gap and then
4:53continuing to the downside.
4:56So yeah, that's the fair value gap. It's
4:58not just a gap, it is a clue that the
5:00market may want to rebalance before
5:04moving on.
5:07Right? So
5:09now
5:11just follow these rules right here, and
5:13you will be able to easily identify a
5:15fair value gap. Basically, you just want
5:17to see like a big juicy candlestick just
5:20like this, either a bullish or a bearish
5:21candlestick, which signal that is strong
5:23displacement.
5:25And then you want to look for the
5:26candlestick that comes before it and
5:28after it.
5:29If there is a gap that was formed at the
5:32high of the previous candle and the low
5:35of the following candle, and there's a
5:37gap just like this, then there is
5:38imbalance. However, if let's say
5:42even though we see a big candlestick
5:43just like this in the previous
5:45candlestick, the wick was like somewhere
5:47right around here. Right? And then the
5:50next candlestick, the wick was somewhere
5:51around here. So in this case, once
5:53again, following the exact same
5:54principles, we identify a huge
5:57candlestick just like this, strong
5:59displacement. So somewhere over here,
6:01there might be an fair fair value gap or
6:03there might be an imbalance. Now, let's
6:05take a look at the candlestick that
6:06comes before and after it. Well, the
6:08candlestick that came before it, the
6:09high was right here. Well, the
6:12candlestick that came after it, the low
6:14was right here, right? So if you look at
6:16this, there is no fair value gap
6:18whatsoever. So even though there was a
6:20lot of buying pressure and a lot of
6:22buying momentum here, there is actually
6:24no imbalance. Right? This just show
6:26that, you know, smart money did actually
6:28came up there, pulled back, filled up
6:30the remaining buy orders before
6:31continuing even further, right? So there
6:33is no imbalance, there is no
6:35inefficiency whatsoever.
6:39So ideally, we want to combine whatever
6:43we have learned so far with this concept
6:45itself, which means that we want to see
6:48a bullish fair value gap at a discount
6:52range. And ideally, we want to trade it
6:54if the higher time frame trend
6:56direction, the swing structure, the
6:59internal structure is actually bullish.
7:01Then we want to look for longs at all of
7:03these fair value gap when price comes
7:04down to mitigate it.
7:07Same thing as the bearish fair value
7:08gap, but like in an opposite manner.
7:11So now, let's try to go under the charts
7:14and try to apply this concept itself,
7:16right? Before I give you more more tips
7:18on fair value gap.
7:19So just using your naked eyes alone, you
7:21should be able to easily spot a fair
7:23value gap. Like I said, first step, just
7:25look for strong displacement. Okay?
7:27Let's go from left to right, right left
7:29side here. What do we have? We see big
7:32candlesticks just like this.
7:33Immediately, my eyes is drawn towards
7:35that big
7:37bearish candlestick, and this is where
7:39you can find the candle that came before
7:41it and the candle that came after it.
7:43And then this is where I can draw a box
7:46marking up the imbalance, marking up the
7:48gap just like this.
7:51And sure enough, later on price did went
7:53up there, mitigate the fair value gap,
7:55and then come down. Okay? And then
7:57another very obvious one that I've seen
7:59is probably this one right here. Very
8:01obvious strong displacement. The low of
8:03previous candlestick and the high of the
8:05next candlestick, drag all the way up
8:06here, and once again, you can see price
8:08came all the way down here. Right? And
8:11then went up there, mitigate it before
8:12continuing down even further.
8:15So this is why you guys shouldn't be
8:18rushing into trades when price have
8:20already made its move, right? So in this
8:21case, price has already came all the way
8:22down here. You don't want to be entering
8:24for a sell right here. Because if you're
8:26entering for a sell right here, you are
8:28going to be at a huge disadvantage
8:29because you have to place your stop loss
8:31above this high, and your entry is just
8:34not precise anymore. So you're much more
8:36better off being patient, you know,
8:38because you understand the concept of
8:40imbalance and balance, just waiting for
8:42the market to pull back to
8:44fair value gap just like this, and then
8:46when it does, then you look for shorts,
8:47and then just continue shorting it down
8:50from there.
8:52So let's try to identify a bullish fair
8:54value gap. Since that's the bearish fair
8:56value gap, okay, there's one right here,
8:58right? Huge imbalance to the upside.
9:00Okay, there's a gap from this high and
9:02this low of the next candlestick right
9:04here. And sure enough, price pulled back
9:06to this fair value gap, mitigated,
9:08consolidated a little bit, and then
9:09starts going up.
9:12Now,
9:13let me just give you one final example
9:15before I can show you some tips and
9:16tricks. Maybe I can do it in the live
9:17market condition. Right? So you can see
9:19this is very obvious big bullish
9:22candlestick, strong displacement. And
9:24then this is the high of the previous
9:26candlestick and this is the low of the
9:28previous candlestick, and you can see we
9:29got a little fair value gap right here.
9:31But in this case, the reason why the
9:34fair value gap failed is because if you
9:36look at the higher time frame structure,
9:37it is still bearish. So like I said,
9:40it's all about really just using as many
9:42weapons in the arsenal to just develop a
9:44proper trade bias, taking into
9:46consideration everything before you
9:48actually look for longs or look for
9:50shorts.
9:52So
9:53another thing that you guys must
9:55understand is that
9:58you want to make sure that you don't
9:59just mark up fair value gap if there is
10:02no gap whatsoever. What I mean by that
10:04is that a lot of people that they see
10:06like big candlesticks just like this.
10:08You can see big candlesticks, big
10:09candlesticks. Then they immediately come
10:10here and they try to like mark out a
10:11fair value gap as like this range right
10:13here or something.
10:14But that's not true, right? Because
10:16there is no gap whatsoever. If you zoom
10:18into this price point over here.
10:22Okay? Yes, strong displacement. But if
10:24you look at the high of the previous
10:25candlestick and look at the low of the
10:26next candlestick, which is right here,
10:28there is no gap whatsoever. And since
10:31there's no gap, this is not counted as a
10:32fair value gap, which also means that
10:34there is no imbalance right here.
10:38Okay, compared to if you look at the
10:39left-hand side over here, where did
10:41price actually retrace to?
10:43Price potentially retrace back to this
10:45fair value gap that we have right here.
10:47Okay, retrace back to this bearish fair
10:49value gap and then continuing
10:51with the higher time frame downtrend.
10:55So, remember, you don't just want to
10:57look at fair value gaps alone. You want
10:59to think about what is the market doing
11:01right now. Who is in control of price?
11:02Okay, so right now clearly today price
11:04is bearish right now. Sellers are in
11:05control of price. Cool. That tell me
11:07that I need to look for
11:09bearish fair value gap. Okay? And then
11:11ideally, I want to wait for price to
11:13pull back to a imbalance to the
11:15downside.
11:17And then once that happens, then I can
11:18potentially look for shorts. Okay, or
11:20what you can do is also to combine your
11:22premium and discount with your fair
11:24value gap concepts. So, example in this
11:27case right here, price broke structure,
11:29came down. This is your swing high and
11:32this is your swing low. And then maybe I
11:34can just map that premium and discount
11:36up there. And this is where you might
11:38have identified one fair value gap right
11:41here, another fair value gap right here.
11:43And you can see both of these are fair
11:45value gaps. But why is it a fact that
11:48this one got disrespected where price
11:50just blast right through while this one
11:53actually got respected? It's because
11:55this one is more high up within the
11:57premium range. And there's also a huge a
12:00more bigger amount of imbalance right
12:03here where the market has to fill before
12:05it continue going down even further.
12:09So, yeah. Always make sure that you
12:10trade fair value gaps with context. Once
12:13again, none of these market mechanics
12:15concepts they can work just by itself
12:17alone. You cannot just say, "Okay,
12:19bearish fair value gap, I'm just going
12:20to enter for a sell. Bullish fair value
12:22gap, I'm just going to enter for a buy."
12:23If you trade that way, it's very, very
12:26dangerous, right? You want to use
12:28multiple confluences itself.
12:31Uh another thing you must understand is
12:33that sometimes
12:35price will tap into the edge of the fair
12:38value gap and then react from it and
12:40then go.
12:41But sometimes it might go deeper into
12:43it. Okay, let me just give you a few
12:44examples. In this case,
12:47price came down, tap into the fair value
12:49gap and then go.
12:51All right? And then in this other
12:53scenario, it came all the way up to the
12:55midpoint, which is the 50% of the fair
12:57value gap and then go.
12:59Uh another example is this one, right?
13:01Maybe price came all the way down here,
13:03came all the way up to the extreme,
13:06right? Extreme of the fair value gap and
13:08then go.
13:10Uh another example like maybe
13:13this one right here, where price even
13:14pierce past the fair value gap
13:17and then go.
13:20So, do not expect the market to react
13:22the same way every time.
13:25Just draw out the fair value gap right
13:26there and don't assume that price is
13:28going to touch it and go. Okay, because
13:30there's sometimes where it will touch
13:31the 50% of it. There's also times where
13:33it will touch the extreme of it and then
13:35go. There's also times where price might
13:37break past the fair value gap, sweep
13:39some liquidity, and then go. Okay, so
13:42never, ever assume. Just use this as
13:45like a reference point, but like don't
13:48stick to it. Okay, like don't don't
13:49don't don't just expect or anticipate
13:52price to touch it and go.
13:55So, once again, you want to make sure
13:57that you are using this fair value gap
14:01with
14:02the other concepts, supply and demand
14:03zones, with you know, premium and
14:06discount.
14:07So, ideally, I want to look for bearish
14:10fair value gap that is within premium
14:12pricing. I want to short from there. And
14:14I want to look for longs at the
14:18fair value gap, the bullish fair value
14:20gap that is within the discount ranges
14:21itself.
14:25And one way that you can use fair value
14:26gap is that you can use it as a way for
14:29you to actually enter on your trade,
14:30right? So, for example, the minute price
14:32mitigate this bearish fair value gap,
14:34you can look for shorts. And then short
14:35it all the way down here.
14:37Another way you can use fair value gap
14:39is to use them as targets because that
14:41is where price is gravitating towards.
14:44So, for example, if let's say like I
14:47drew I want to enter for a sell at this
14:49fair value gap right here.
14:51And then I want to target maybe this
14:53next fair value gap that we have on the
14:55left-hand side over here.
14:57Okay?
14:58This is where you can potentially look
15:00for shorts the minute price mitigate
15:01this bearish fair value gap. And you can
15:03potentially target the next fair value
15:07gap, which is where price is gravitating
15:09towards next, which is this one right
15:11here, right? This is the next bullish
15:13fair value gap.
15:14Yeah, so you can either use it to help
15:16you enter your trades or you can also
15:18use it to help you to set your take
15:21profit.
15:23Because once again, you must understand
15:24that that is just a price point in which
15:27price is gravitating toward.
15:30It doesn't always have to fill up the
15:31fair value gap, but a lot of times it
15:34tends to do that before continuing
15:36moving off.
15:39So, maybe let me just go through like a
15:41few more examples. Or maybe I can show
15:44you how I would use it live as well.
15:46Right? So, let's just look at this one
15:48right here.
15:51Okay, so in this case,
15:54let's say price has been coming down
15:55here very aggressively. Okay, very
15:58aggressively coming down. You look at
16:00the internal structure. You saw that
16:01prices came down, pull back, and then
16:03goes down even further creating like an
16:05internal break of structure to the
16:07downside just like this.
16:10Okay, so this becomes my swing high.
16:14And then this becomes my swing low.
16:16Well, my swing low has not been formed
16:17yet since price has not made a pullback,
16:19right? So, let's just wait. Okay, the
16:21minute price has been back there, I can
16:22move my swing low here. So, now once
16:24again, just using all the concepts that
16:26we have learned so far, this is where
16:28you can map out your premium and
16:29discount.
16:30Okay? And right now we are anticipating
16:32price to pull back to the premium range
16:34before continuing down even further.
16:37It doesn't have to, but if it does, good
16:39for us. It's just an additional
16:41confluence. But like I said, it doesn't
16:42have to.
16:43And then maybe I can draw my supply
16:45zone, right? Just by marking out this
16:47pivot
16:49candle right here at this extreme end,
16:52right? There we have six uh supply zone.
16:56Okay? And then now, introducing this new
16:59concept of imbalance of fair value gap,
17:01I'm asking myself, "Okay, where is the
17:03strong displacement in this entire
17:05move?" Because once I identify the
17:07strong displacement, which is really
17:09just a fancy word
17:10of a big bullish or bearish candlestick,
17:14then I can identify my fair value gap,
17:16right? So, in this case,
17:18once again, I'll say like just use your
17:20naked eyes and just compare it with the
17:24size of the candlesticks that is near
17:27it, right? So, that's how you kind of
17:28tell whether it is big or small. You
17:30just find like use your common sense and
17:33try to find like the biggest
17:34candlesticks in here. And then just try
17:36to com- compare it with like the
17:38preceding candlesticks, right? If it's
17:39way bigger than them, right? If it's
17:41like a big boy, then you know that
17:43there's probably a strong displacement.
17:45So, in this case, big candlestick right
17:47here. Okay? Then now I'm looking at a
17:49candlestick that comes before it and a
17:51candlestick that comes after it.
17:53So, for the candlestick that comes
17:55before it, this is where I mark up the
17:56low. And then for the candlestick that
17:58came after it, this is where I mark up
17:59the high.
18:00So, now, is there a gap? Yes, there is,
18:03right? There is a gap which tells that
18:05there's an imbalance or inefficiency or
18:07fair value gap or whatever name you like
18:08to call it.
18:10So, this tells us that price is going to
18:11be gravitating towards that gap, fill up
18:14that gap before continuing down even
18:17further.
18:18Right? So, in this case, this becomes my
18:21fair value gap.
18:23Right there. Okay, so that is the most
18:25recent
18:27bearish fair value gap.
18:31Now, is there any other fair value gap
18:32right here? Well, let's look at the
18:34candlesticks, right? Is there a fair
18:35value gap say around here? Nope, because
18:38this low is around the same level as
18:41this high right here. Is there a fair
18:43value gap around here? Well, this is the
18:45low of the previous candlestick, this is
18:46the high. So, nope, no gap. So, no gap,
18:48no gap, no gap. Only here have a gap.
18:50Okay, so this is like the only fair
18:52value gap inside this entire move to the
18:54downside itself.
18:56And just observe what price does next.
18:59Okay, price pretty much came up there,
19:01mitigates the fair value gap, and then
19:03continuing down even further. And I
19:06believe it's going to start reversing
19:08anytime right now.
19:12Oops, that's a little bit too fast.
19:14Okay, but it ends up consolidating
19:15around here and then eventually reverse.
19:17Okay, so if you were to trade this fair
19:20value gap, right? You can potentially
19:21look for shorts.
19:23The minute price mitigate this fair
19:24value gap, place a stop loss above the
19:26fair value gap and just target like 3R
19:29or 2.5R,
19:31you know. We are going to talk more
19:32about where to place a stop loss and
19:33where to place a take profit later on,
19:35but for now, not going to focus on
19:37entries and exits. Just going to focus
19:39on sharing with you guys like this fair
19:41value gap concept and just helping you
19:43guys implement it. So, yeah. In this
19:45case, right? This could potentially
19:46worked out. And where would he have been
19:48able to target? Well,
19:50you know, another way that you can use
19:52fair value gap is to use it as a price
19:54point to actually target, right? So, in
19:57this case, maybe let's come back here.
19:59So, let's say you got to enter the trade
20:00right here. You enter for shorts, you
20:02know,
20:03and you place a stop loss above the fair
20:05value gap, and now you are you don't
20:06know where to actually target.
20:08Okay, so what you can potentially do is
20:11to find what's what's the next opposing
20:13fair value gap. So, if I'm entering for
20:15a sell at a bearish fair value gap, I
20:17want to target the next bullish fair
20:19value gap because that's where I'm
20:21expecting price to move towards next and
20:24then reverse to the upside.
20:26So, this is where I'm looking at the
20:27left-hand side, looking at the price
20:29action that just happened right here,
20:31and I'm asking myself, where is the most
20:33recent bullish fair value gap? Because
20:35that's potentially where I can set my
20:37take profit. So, I'm looking at the
20:39left-hand side right here.
20:41What about that price went up? Right,
20:43strong displacement to the upside, cool.
20:45Let's go step by step. Big candlestick
20:48right here, and then followed by another
20:50candlestick and followed by another
20:51bigger candlestick itself. So, just by
20:53doing this alone, I can map this as a
20:55fair value gap because
20:57this high right here and then this low
21:00of the next candlestick was formed,
21:02creating us like a fair value gap just
21:04like this. And then there could
21:05potentially be another fair value gap
21:07right here, right from this previous
21:10high um and to this new low right here.
21:13So, there's actually two fair value gaps
21:15in this case.
21:16And if you go down to the 5-minute time
21:18frame, you will see that price actually
21:22end up
21:23coming down to the second one,
21:25respecting the second one, maybe coming
21:27even deeper into what we would call an
21:29order block over here, which you're
21:30going to learn in the next lesson, and
21:33then starts moving to the upside. Right,
21:35so I'll say like what you can do is to
21:37use it either to
21:40enter on a retracement, right? Use it to
21:42to like allow yourself to gauge where
21:44price is retracing to,
21:47or you can also use it as a target area
21:49because that's where price is most
21:51likely going to move towards the area
21:52next in order to rebalance.
21:55Obviously, like if you were to place a
21:56take profit at this fair value gap, it's
21:58not the best like risk-to-reward
22:00decision unless you're scalping. You
22:02know, if you're scalping, you could
22:03potentially enter like upon the
22:05mitigation of this fair value gap, stop
22:06loss above that high, and then just
22:08target like this low right here. But
22:10like I said, I don't want to get too
22:12deep into the nitty-gritty details when
22:14it comes to entering and exiting because
22:15I really want you to like just
22:17familiarize yourself with this concept
22:18of fair value gap itself. Because like I
22:20said, it's a very simple concept, but if
22:22applied well, it's actually pretty
22:24powerful.
22:26Now,
22:27I can't emphasize this enough, but just
22:30because you can identify that fair value
22:32gap, does not necessarily mean that it's
22:35going to hold.
22:37Remember, the whole gist of a fair value
22:39gap is that that's where price is going
22:42to move towards next.
22:44But it doesn't tell you that, okay,
22:45that's where price is going to move
22:46towards next and it's going to hold. No.
22:50It just says that it's a magnet that's
22:52drawing the price towards that area.
22:55Whether that area holds or not, that's
22:56another story.
22:58That depends on the market structure,
22:59depends on whether there was liquidity,
23:02depends on so many different other
23:03factors.
23:05So,
23:06that's why you don't ever ever want to
23:08assume that a fair value gap is going to
23:10hold. This is the mistake that a lot of
23:12people make. They just trade fair value
23:14gaps alone, right? When price mitigate
23:16the fair value gap, they immediately
23:17enter for a trade without realizing that
23:21you know, it's not going to hold because
23:23the structure is against you, you are
23:25trading at the wrong location, you are
23:28trading a bullish fair value gap in a
23:30premium pricing, you know, like you
23:32don't take into account the
23:34context of the market. And as a result,
23:37you fail trading the fair value gap. So,
23:40just to give you an example of what I
23:41mean by that, look at this. Strong move
23:44to the upside, right? Strong move to the
23:46upside, very strong displacement right
23:48here, big bullish candlestick, a lot of
23:50buying pressure, a lot a lot of buying
23:52intent, a lot of buying momentum.
23:55So, just by looking at this alone, I can
23:57see that, okay, this is the high, this
23:58is the low, boom, my fair value gap is
24:00right there.
24:01And in this case,
24:04price has pretty much
24:06come down, right? It's retracing. At
24:09this point of time, your immediate
24:10instinct should be, okay,
24:13price is retracing. Now, where is price
24:16most likely going to retrace towards
24:17next?
24:18The fair value gap. That's it.
24:20Okay, that's what you use fair value
24:22gaps for. For you to know where price is
24:24most likely going to retrace to because
24:26that's the area where price needs to
24:28balance before it continue moving. So,
24:30in this case,
24:32I'm not going to be entering for a buy
24:33right here.
24:35I'm not going to be entering for a buy
24:36right here. I'm only going to enter for
24:38a buy if price has come back down to my
24:40fair value gap, and that is where the
24:42balance can potentially occur.
24:44Right, so in this case, price comes down
24:46to the fair value gap. Now, I will
24:48consider looking for longs if I have
24:50multiple confluences.
24:52Right, if I have multiple confluences
24:54that tell me that it's a good idea to
24:55enter for longs, then boom, this is
24:56where I can enter for a longs.
24:58If not, then I would just be using this
25:01as a reference point for me to know
25:03where price is moving towards next, and
25:06that's it. I will not trade it. So, in
25:08this case, let's continue to see what
25:10price does. Price came down and break
25:13right through it.
25:17Like I said, it's not just about the
25:18fair value gap alone, it's about a
25:20myriad other different factors
25:24for you to actually develop a great
25:26trade idea.
25:29So, yeah, I hope I've shown you guys
25:31like multiple examples, right? Just to
25:33really
25:34ensure that, you know, you are super
25:36duper familiar with like just applying
25:38this concept and just knowing that it's
25:40not as simple as, oh, buy at a fair
25:42value gap, a bullish fair value gap, or
25:44sell at a bearish fair value gap.
25:46You need to take into account of the
25:48liquidity, the market structure, the
25:50zones around it, right? A lot of
25:52different other factors, which we are
25:54going to continue talking about over the
25:56next few lessons itself.
26:00So, to keep it simple, just to sum up
26:02everything, an imbalance or a fair value
26:06gap
26:07is an inefficient area in the market
26:10that is created when the price moved
26:13very aggressively in one direction.
26:15Basically, in simple English, it just
26:18tell us that at this point in time,
26:20smart money have entered for a large
26:22amount of buy orders,
26:25causing price to move up so aggressively
26:28that it just created this gap, just left
26:30behind this gap.
26:31Same thing for the bearish fair value
26:33gap, but instead of buy orders, they
26:35enter for a ton of sell orders,
26:37causing price to collapse so fast, so
26:39far that it left behind a gap just like
26:41this.
26:42And remember when we talk about the
26:44supply and demand concept, where we
26:45talked that
26:46when smart money push price in a sudden
26:49direction, it tends to cause price to
26:52retrace back to that same direction so
26:55that they can fill up the remaining
26:56orders.
26:57It could be the same thing in this case
26:59right here. After a bullish fair value
27:01gap just like this, smart money might
27:02want to cause price to come back down
27:05to this fair value gap,
27:07and then look for more buy orders,
27:10causing price to continue going up.
27:14Okay, so that's the concept of fair
27:16value gap. It's very simple. It's
27:19basically huge move, and we are
27:21expecting price to retrace to fill up
27:23that huge move and then going up even
27:26further. Just tying back to the cycle of
27:30imbalance, balance, imbalance, and then
27:33balance, and then imbalance again.
27:36That's just the build of price, right?
27:38That's just how price fundamentally
27:41move.
27:42But like everything else in trading,
27:44it's not just about identifying and
27:46trading the fair value gap. It's about
27:49learning how to use it
27:51in the right market conditions, learning
27:54how to combine it with other confluences
27:56to develop a proper trade idea.
28:00That's what a fair value gap is. And in
28:02the next lesson, or I don't know, like
28:05the next few lessons, I'm going to talk
28:06about an order block, which is a concept
28:09which requires you to really understand
28:11imbalance or fair value gap. If you
28:13don't understand whatever I just covered
28:15for like the past 30 minutes or so,
28:17please make sure you rewatch it, right?
28:19Rewatch it over and over again until you
28:22get it. And not only must you get it,
28:23but you must also know how to implement
28:25it.
28:27If you know how to implement it, then
28:29you can move on to the next lesson. If
28:31you don't, then I'll say like keep on
28:32practicing, keep on like training your
28:35brain to like spot this fair value gap
28:37and spot these imbalances.
28:39And most importantly, please just watch
28:42these lessons in chronological order,
28:44right? Because if you skip this lesson
28:46and you move on to the order block
28:47lesson, you wouldn't know
28:49anything that I'm talking about on the
28:51order block because like each lesson is
28:53built on top of the previous lesson
28:54itself. Right, so if you want to learn
28:56how to trade order block, you have to
28:58first learn how to identify imbalance.
29:02Because you can only find an order block
29:04when you have identified imbalance,
29:06right? So, all of these concepts
29:07literally built on top of each other
29:08like a pyramid. And if you, you know,
29:11just skip to the next level for going to
29:13the previous level, it's like going to
29:16fight the level 100 boss in a video game
29:18when you haven't even defeated the level
29:2020 boss.
29:22Right? So, stop trying to rush the
29:23process, continue plugging through these
29:26courses and lessons in chronological
29:28order, continue getting better at
29:31understanding these concepts and just
29:33applying them.
29:34Okay, so maybe I'll just give you one
29:35last example to end off this video
29:37itself, right? Just to show you um like
29:40how it really works once again because I
29:43just really want to
29:44emphasize the importance of this concept
29:46itself. So, price came down very
29:48aggressively, strong displacement in
29:50price. Okay, immediately spotted the
29:52strong displacement. When you do that,
29:54this is where you can look at the candle
29:55came before it and the candle came after
29:57it. And when you do, find the low of the
29:59previous candle, find the high of the
30:01next candle if it's a bearish fair value
30:02gap, and drag it out just like this. And
30:04boom, there is a fair value gap. And in
30:06this case, price came up, mitigate the
30:08fair value gap, continue going down, but
30:10there was not enough liquidity, there
30:11was not enough fuel. So, as a result, it
30:13actually came back up and mitigate the
30:16order block, which is what we're going
30:17to cover next, and then continuing down
30:20even further.
30:21Right. So, hopefully by now you have
30:23seen like how important it is to like
30:26just really have multiple weapons in the
30:28arsenal so that you can like maneuver
30:31and change to a different position when
30:33your enemy is fighting from in the other
30:35direction.
30:37That's what trading's really about,
30:38right? It's just really about having as
30:40much confluence as as possible to make
30:42the most sense out of the market.
30:44So that you can have the probabilities
30:47on your side, right? So that you can
30:49have the odds on your side rather than
30:51having them stacked against you.
30:54With that said, I look forward to
30:55teaching you guys a new concept in the
30:57next lesson. And as always, remember
30:59you're just one trade away. Mwah.

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