HOW TO IDENTIFY WHICH FVGS WILL BE RESPECTED

Introduction

This tutorial aims to help traders identify which Fair Value Gaps (FVGs) are likely to be respected in the market. Understanding FVGs is crucial for making informed trading decisions, as they can indicate potential areas of support and resistance. This guide breaks down the steps to effectively analyze and identify these gaps.

Step 1: Understand Fair Value Gaps

• Definition: Fair Value Gaps occur when there is a price imbalance in the market, typically seen in candlestick charts. They represent areas where price has moved quickly, leaving behind gaps.
• Importance: Recognizing FVGs can help traders identify potential reversal points or continuation patterns in price action.

Step 2: Analyze Market Structure

• Identify Trends: Determine whether the market is in an uptrend, downtrend, or ranging.
  • Use higher highs and higher lows for uptrends.
  • Use lower highs and lower lows for downtrends.
• Look for Breaks: Notice breaks in structure, which can signal the formation of FVGs.

Step 3: Locate Fair Value Gaps

• Scan the Chart: Look for gaps between the close of one candle and the open of the next.
• Key Indicators:
  • Gaps that appear after significant moves in price are often more respected.
  • Check for gaps that align with key support or resistance levels.

Step 4: Validate FVGs

• Volume Analysis: Higher volume at the time of the gap can indicate a stronger potential for respect.
• Confluence Zones: Look for FVGs that coincide with other technical indicators such as Fibonacci retracement levels, moving averages, or previous highs/lows.

Step 5: Monitor Price Action

• Watch for Reactions: Observe how the price behaves when it approaches the identified FVGs.
• Confirmation Signals: Look for reversal patterns or candlestick formations that signal possible entries or exits, such as pin bars or engulfing patterns.

Step 6: Manage Risk

• Set Stop Losses: Always define a clear stop loss level when trading near FVGs to manage potential losses.
• Position Sizing: Determine your trade size based on your risk tolerance and the distance to your stop loss.

Conclusion

Identifying respected Fair Value Gaps is a valuable skill for traders seeking to improve their market analysis. By understanding market structure, validating potential gaps, and monitoring price action, you can make more informed trading decisions. Consider practicing these steps in a demo account before applying them in live trading. Happy trading!