Discussing the article: "Mastering Fair Value Gaps: Formation, Logic, and Automated Trading with Breakers and Market Structure Shifts"
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Check out the new article: Mastering Fair Value Gaps: Formation, Logic, and Automated Trading with Breakers and Market Structure Shifts.
This is an article that I have written aimed to expound and explain Fair Value Gaps, their formation logic for occurring, and automated trading with breakers and market structure shifts.
Fair Value Gaps are created when there are rapid price movements in either direction, indicating strong buying or selling pressure, primarily from institutional players. In simple terms, this trading pressure often leads to a scenario where traders do not have equal opportunities to place or execute trades; therefore, in a bullish fair value gap (FVG), where price has left a point with force and speed toward higher prices and sellers have not had enough time or opportunity to execute them, while in a bearish fair value gap (FVG), where price has left a point with force and speed toward lower prices and buyers have not had enough time or opportunity to execute them, this area is called an unbalanced price range, as there has been no price movement in the opposite direction from where the expansion came from.
This can be explained most clearly through painter's logic: when a painter paints a wall, they must paint it with equal, or even similar, brushstrokes in opposite directions so that the paint is applied evenly and is balanced, or rather, of high quality. This same logic applies to price. When a bullish candle expands and breaks through a price point, for example, from 1.3010 to 1.3030, a bearish candle must also break through that price point to balance the price, and if it doesn't, it becomes a fair value gap (FVG). Often, if not always, the price will return to this point eventually. This is where and when we should look to take advantage of these fair value gaps, as they offer vast and rewarding opportunities.
The following illustration shows examples of Fair Value Gaps and how they were used.
Author: Eugene Mmene