Advanced FVG
Last updated
Last updated
This doc talks about how to find high quality FVGs.
what this is about: A basic overview of FVGs and a tip to find the good ones.
Fair Value Gaps (FVG) is a point where the market is imbalanced. Either the selling side or the buying side is dominant.It is where a pair of 3 candles form a gap.Bullish FVG:The 1st candle’s high is less than the 3rd candle’s low.
Bearish FVG:
The 1st candle’s low is greater than the 3rd candle’s high.
Price will revisit this area to balance out the market.
FVG’s hold better when they’re one directional.A bearish FVG has to have 3 bearish candles in a row. There can be no bull candles.This is a correct one directional bearish FVG
This is a wrong FVG because they’re not all bearish candles. The last candle is a bull candle.
A bullish FVG has to have 3 bullish candles in a row. There can be no bear candles.
This is a correct one directional bearish FVG.
This is a wrong FVG because they’re not all bearish candles. One of the 3 candles is a bear candle.
what this is about: This talks about using shelves & FVGs to take trades.
Sell exampleWhen price rejects off of a bearish FVG, it usually rejects from the low of the shelf (like we see here). When I say shelf, I refer to the range which was right before the FVG.
To take a sell, enter when price reaches the shelf.
For the Tp and SL, draw a fib based on the latest range.
Place your TP (at least your partial TP) at the top of the Discount zone because we’re unsure of whether price will continue down or find buy orders in the Discount zone to go up.
Place your SL at the top of the FVG because if price reaches the top of the FVG and closes it off, it is likely to go higher up to the Premium zone or above and then drop back down. So, keep a tight SL.
uy example
When price rejects off of a bullish FVG, it usually rejects from the high of the shelf (like we see here).
When I say shelf, I refer to the range which was right before the FVG.
To take a buy, enter when price reaches the shelf.
For the TP and SL, draw a fib based on the latest range.
Place your TP (at least your partial TP) at the bottom of the Premium zone.
Place your SL at the top of the FVG.
what this is about: This mostly talks about invalid FVGs and shows examples of them.
When we see a Fair Value Gap with no prior significant rejection levels or shelf, that Fair Value Gap turns into a Volume Gap. Price will run through it instead of rejecting off of it and will likely target the Order Block beneath it.
Example:
With this in mind, you might think that every FVG with a perfect formation and a perfect shelf works. Well, the probabilities are in your favor but there’s something that can make the FVG invalid.Bullish example:Let's say price comes down to your FVG, rejects from it and then drops down. That micro rejection makes the FVG invalid. We don't want price to come down to our FVG, use it to reject off of it and then finally hit our shelf. That makes it invalid.
The correct formation is when price makes a clean contact with the shelf. When price approaches the FVG, it should directly come to our point of interest (i.e. our shelf).
Bearish example:
This is the wrong formation:
This is the correct formation:
Let’s see a bullish chart example of an invalid FVG.Here, it seems like you have a perfect FVG but it is invalid. Let’s see why.
It’s invalid because price came down to the FVG and reacted from the shelf. so even if price comes back again to the FVG, that reaction is no longer valid because price already visited this FVG.
This tells us that it is more than likely a gap. If price comes down to the FVG AND closes below the level of the previous interaction, it is likely to go down to the previous FVG or at least fill up that zone. You could use that as a short term sell bias.
We can see that that’s what actually happened. Price reached the FVG and closed below the level of the previous reaction. That led to price reaching falling down to the gap.
Let’s look at another invalid FVG.
This FVG is invalid. Let’s see why.
Let’s mark out the shelves. We have 2 shelves: a macro shelf and a micro shelf. Why is the 2nd level a micro shelf? The 2nd shelf is the latest high before the latest low which formed a BOS (Break of Structure). That latest high is the last swing high on lower timeframe.
So, what makes this FVG invalid? If we take a closer look, we can see that price already reached both the shelves. This tells us that there is no shelf in this FVG.
Price is likely to reach the top of the FVG. If it does make that initial contact, it might go up (to look for liquidity) and then come down to completely close off the FVG.
And that’s what actually happened.
