A Fair Value Gap (FVG) is a price action phenomenon that is usually illustrated using three consecutive candles when the wicks of the two candles sandwiching the third candle fail to meet or overlap. A Fair Value Gap (FVG) is a range in Price Delivery where one side of the Market Liquidity is offered and typically confirmed with a Liquidity Void on the Lower Time Frame Charts in the same range of Price. Price can actually “gap” to create a literal vacuum of Trading thus posting an actual Price Gap. It occurs when price leaves a specific level where there’s less trading activity seen and only has a one-directional price movement.
The key point in identifying FVGs is that the gap is only calculated by the impulse up or down candle,
and the candles on either side of that move. Everything else does not contribute towards that gap.
A Liquidity Void is a range in price where one side of the market liquidity is shown in wide or long one-sided ranges or candles. It occurs when the market aggressively moves away from a consolidation, creating a void of buy-side liquidity. This means that very little buying took place during the price movement. The nature of a liquidity void is that, with a high probability, the price will eventually move back up and trade over the same price levels that were previously void of liquidity. The idea behind FVGs is that the market will eventually come back to these inefficiencies in the market before continuing in the same direction as the initial impulsive move. FVGs are important since traders can achieve an edge in the market. Price action traders can also use these imbalances as entry or exit points in the market.
BISI = Buyside Imbalance and Sellside Inefficiency
SIBI = Sellside Imbalance Buyside Inefficiency.
A Bullish FVG is a BISI. A FVG is made up of 3 consecutive candlesticks. In a BISI, it starts with the high of candle #1 which will be the FVG low and ends with the low of candle #3 which is the FVG High. A Bullish FVG gets created when the low of candle #3 doesn't overlap the high of candle #1. This happens when there is a displacement in price from candle #2. It is called a Buyside Imbalance Sellside Inefficiency (BISI) because during candle number 2 there is only buyside offered to the market so there's a Buyside Imbalance and because there's no sellside being offered there's a Sellside Inefficiency.
A Bearish FVG is a SIBI. A SIBI starts at the low of candle #1 which is the FVG High and ends with the high of candle #3 which is the FVG Low. A Bearish FVG is created when the high of candle #3 doesn't overlap the low of candle #1. This happens from the displacement of candle #2. It is called a Sellside Imbalance Buyside Inefficiency (SIBI) because during candle #2 there was only sellside offered to the market so there's a Sellside Imbalance and because there is no buyside being offered there's a Buyside Inefficiency.
A Bearish FVG is a SIBI. A SIBI starts at the low of candle #1 which is the FVG High and ends with the high of candle #3 which is the FVG Low. A Bearish FVG is created when the high of candle #3 doesn't overlap the low of candle #1. This happens from the displacement of candle #2. It is called a Sellside Imbalance Buyside Inefficiency (SIBI) because during candle #2 there was only sellside offered to the market so there's a Sellside Imbalance and because there is no buyside being offered there's a Buyside Inefficiency.
Inverted FVG - When price use SIBI (Bearish FVG) as support and when price uses BISI (Bullish FVG) as resistance. In other words word, inverted FVGs are failed Fair Value Gaps that get retraced into later in price. We consider Inverted FVG only when:
1. Bullish FVG formed inside Premium Zone (above Equilibrium).
2. Bearish FVG formed inside Discount Zine (below Equilibrium).
2. Bearish FVG formed inside Discount Zine (below Equilibrium).
Most
of the time Bullish FVG that was formed inside Premium Zone will fail
to give us reaction when price comes back to that FVG. We want to see
price goes lower and bounce back right to this FVG to continue sell off.
In this case that Bullish FVG becomes Resistance and I would say Strong
Resistance. Exactly the same for the Bearish FVG that was formed
inside Discount Zone — we want to see price is trading higher to break
this FVG and makes it invalid then retest of this zone again and
continue move up. This FVG becomes Support Zone.
Implied Fair Value Gap - it utilizes two wicks and their respective Consequent Encroachment. An Implied Fair Value Gap (IFVG) is an imbalance formation consisting of three candles, as conceptualized by ICT. It involves identifying a larger candle body and measuring the average between the two adjacent candle shadows.
Implied Fair Value Gap - it utilizes two wicks and their respective Consequent Encroachment. An Implied Fair Value Gap (IFVG) is an imbalance formation consisting of three candles, as conceptualized by ICT. It involves identifying a larger candle body and measuring the average between the two adjacent candle shadows.
Criteria:
1. Big range candle.
2. Does NOT have a FVG.
3. Candles on either side have long wicks that overlap “Implied FVG”.
2. Does NOT have a FVG.
3. Candles on either side have long wicks that overlap “Implied FVG”.
Steps:
1. Find Consequent Encroachment of left candles lower wick.
2. Find Consequent Encroachment of right candles upper wick.
3. Space between C.E. wicks is “Implied FVG”.
2. Find Consequent Encroachment of right candles upper wick.
3. Space between C.E. wicks is “Implied FVG”.
Balanced Price Range
— is the common area between 2 opposite Fair Value Gaps when they
overlap each other. This overlapping of the FVGs called double FVG. BPR
is the result of an aggressive move up that’s immediately followed by an
aggressive move down or an aggressive move down that’s immediately
followed by an aggressive move up. What's left after either of these
instances is essentially a double Fair Value Gap which can act as a
magnet to the price before a continuation move higher or lower. You have
to have HTF Point of Interest. Don’t enter blindly into the trade which
is have BPR if you don’t know bias for the day. ICT states that in
order for price to become a balanced price range it must trade through
both directions of the price window. As you can see price traded through
the overlapping gaps, rebalancing and redelivering creating a balanced
price range. Once we redeliver, expect price to move away aggressively
from the gap.
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