Simply put, when there are more sellers than buyers it sometimes causes a void in the price action that we call it FVG or Fair Value Gap. You can simply identify these areas on the chart just by finding deserted candles that have no trading history around them.
These value gaps are like errors in the market, price always tends to back to those areas and fill the gap with some more trades. So if you see a sell-off/bullish impulse on the market, try to find The FVG and mark it as the potential target for the price to jump back there whenever the trend starts to shift.
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I still don't quite understand. Here is my thoughts:
Let's consider the 1H timeframe, where each bar represents a trading range within an hour.
bar 1 trades between 5$ - 10$ bar 2 trades between 7$ - 12$ bar 3 trades between 12$ - 20$ bar 4 trades between 15$ - 25$
Then, the gap is between 12$ - 15$. This is because at bar 4, no one can buy at a price cheaper than 15$.
Have I understood it right?
CryptoSep
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@justinfonger, the thing you mentioned is 'gap'. gaps are different from FVGs. in gaps, we simply have no trading history, not at all! in the stock market we can see a lot of gaps because of closing hours and night sessions. in FVGs we have trades but the price moves so sharply that leaves many orders left behind, so we come back to fill those orders, as we come back to fix gaps in the market. the concept is the same but it is harder to spot FVGs if you have untrained eyes.
@CryptoSep, actually if you subscribe to price action in your trading technique. a gap is the same thing as a trend bar. And yes gaps will always eventually get filled, but if you ignore context that negates a gap filling thesis just because your waiting on the gap to fill, I hope to be on the other side of your trade
davidbarratt
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Aka imbalance
rustyflannel
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not sure if this gets replied to as its been a while since the post but im trying to find out if time matters for a FVG? if the chart leaves a FVG could it come back to it in lets say 6 months time or will it be irrelevant by then?
CryptoSep
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@rustyflannel, time doesn't matter but the liquidity of the market matters. in the case of Bitcoin, we are filling the FVGs from 3 years ago but you can not expect the same thing for illiquid shitcoins that once were 20x higher and now have fvg 1000% above the current prices. fvg gets filled by more trades, more trades require money flow.
rustyflannel
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@CryptoSep, oh right okay thank you very much, would you know if there is enough money flow in the market to reach the FVG or would it just be a case of watching as it plays out?
Thorm
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@CryptoSep These fvgs matter only if there are orders/positions open at those levels. I dont think fvgs matter at all after sometime. Definately not after years :D