Imbalances/Fair Value Gaps (FVGs) Flashcards
What are imbalances or FVGs?
-imbalanced price action that needs to be balanced out via a retrace.
What are retracements?
Retracements are just the small downs in an uptrend and small upward chart movements on a downtrend.
What do FVGs look like on the charts?
FVGs are three candlestick patterns where there is a gap between the first candlestick’s wick and the third candlestick’s wick.
Explain a bullish FVG.
Three candlesticks where there is a gap between the top of the first candlestick’s wick and the bottom of the third candlestick’s wick. For candle 1, buy orders push the wick up but sell orders force price to close lower, this is the bottom of the gap. For candlestick 3, sell orders push the wick down but buy orders at that level push price to close higher, this is the top of the gap. Now, in the rectangle, there are a lack of sell orders but plenty buy orders, meaning that when price retraces into this Gap, it surges up due to low sell resistance. The Gap is invalidated (inverse FVG) if there is a candle CLOSURE below the bottom of the FVG.
Do all three candles need ti be the same in order fir there to be an imbalance?
No. The only candle that matters is the middle one, green indicating a bullish imbalance and red indicating a bearish imbalance.
Explain a bearish FVG.
Three candlesticks where there is gap between the bottom of the first candlestick’s wick and the top of the third candlestick’s wick. For candle 1, sell orders push the wick down but buy orders kick in, forcing a higher candle closure, this is the top of the imbalance. For candlestick 3, buy orders push the wick up but sell orders kick in and force a lower candlestick closure, this is the bottom of the imbalance. There are a lack of buy orders in that gap, meaning when price retraces into the gap, it will surge further down due to the lack of buy orders. Invalidated when there is a candle closure above the top of the gap (inverse FVG).
What kind of confluence are imbalances?
Continuation confluence- they continue the already existing trend.
What are the different confluences, in the order that we we look for them before entering a trade?
- Reversal confluence - liquidity sweep
- Confirmation confluences- Break of structure, inverse FVGs, SMTs
- Continuation confluences - FVGs, orderblocks, breaker blocks, equilibrium.
We flow from 1 to 3, this is the essence of the strategy.
When is a bearish FVG disrespected?
A bearish FVG is disrespected when there is a candle closure above it.
When is a bullish FVG disrespected?
Bullish FVGs are disrespected when there is a candle closure below it.
Can price close within a FVG?
Yes, this is called accumulation. FVGs are valid so long as there are candle closures within them, or below in the case of bearish and above in the case of bullish FVGs.
