How To Know Which Fair Value Gaps Will Work

Main ideas / lessons

• Not every Fair Value Gap (FVG) is worth trading. New traders often take every FVG they see; the speaker argues that only some FVGs work because they require the right structural context.
• Core requirement: structural bias + liquidity context.
  • You need to know whether the market is biased bullish or bearish and what liquidity (sell-side or buy-side) has already been swept.
• Two key concepts for filtering FVGs:
  1. Premium vs. Discount (relative position within the prior swing/leg range)
  2. Buy-side vs. Sell-side liquidity (what’s been swept and what’s next to be targeted)

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Methodology / instructions (practical checklist)

1) Use Premium vs. Discount to decide whether an FVG is eligible

• Step A: Identify the most recent meaningful leg (the “range” of the move).
• Step B: Draw a fib (high → low of that range) to split it into:
  • Premium = top portion of the range
  • Discount = bottom portion of the range
• Step C: Apply directional preference:
  • If you are long-biased, prefer FVGs that are inside Discount.
  • If you are short-biased, prefer FVGs that are inside Premium (implied via repeated “discount for longs” and “zoom out for the real bias” logic).
• Step D (important behavior):
  • Many times, after price creates an FVG, traders wait for the market to retrace into Discount and then bounce.
  • If an FVG is not in the “correct” zone for your bias, it’s treated as lower quality / often not worth trading.

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2) Use Buy-side vs. Sell-side liquidity to avoid invalid setups

• Step A: Determine whether price has already swept sell-side liquidity (taking lows/stops below) or swept buy-side liquidity (taking highs/stops above).
• Step B: Invalidate the “wrong direction” based on what’s been swept:
  • If you already swept sell-side liquidity, the speaker says you typically should not short bearish FVGs made on that side, because those FVGs become invalid after the sweep (trend/structure shift).
  • If you already swept buy-side liquidity, the opposite logic applies: don’t automatically keep longing FVGs that contradict the new liquidity/structure reality.
• Step C: Identify the next draw on liquidity:
  • After a sweep, the market often moves toward the next obvious liquidity pool (next highs/lows created by the structure).
  • Your target/direction should relate to what draw is next.

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3) Zoom out: align multiple time frames to avoid “false bias”

• Rule: If you’re too zoomed in, you can misread the bias.
• Instruction:
  • Analyze a bigger timeframe to establish the dominant structural bias.
  • Then drop to a smaller timeframe to find the entry (break of structure + FVG + discount alignment).
• Practical implication shown repeatedly:
  • A setup may look good on the 1–5 minute chart, but if the 1-hour / 4-hour structure bias contradicts it, the trade is treated as lower probability or avoided.
• “Quality setup” standard:
  • An A+ setup is one where the relevant time frames align (bias, liquidity, and where discount applies).

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4) Entry requirements: look for structure shift + displacement, then an FVG in the right zone

• Step A: Require structural evidence, such as:
  • Sweep of liquidity (internal/external)
  • Break of structure / Market Structure Shift (MSS)
  • Displacement (a meaningful impulsive move, not a weak poke)
• Step B: Trade the FVG that is:
  • In the correct premium/discount area for your bias
  • Created by the displacement associated with the structure shift
• Step C: The “preferred retrace” concept:
  • Often price retraces back toward Discount (for bullish cases) and then continues toward the liquidity draw.

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5) When there is only one FVG vs multiple FVGs

• If there is only one FVG in view:
  • A full discount retrace might not always be required (sometimes the setup can be taken with less retracement).
• If there are multiple FVGs:
  • Choose the one in the correct zone (e.g., discount for longs) and discard others as distractions.

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6) Don’t trade “because it’s there”; wait for clarity

• Instruction: If the setup is not clear (no obvious bias or misalignment across context), don’t trade.
• Habit-building emphasis:
  • Even if an unclear trade “works,” practicing it can create bad habits and lead to losses later.

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7) Risk/position management tied to bigger-timeframe bias

• If the larger timeframe bias is still opposed to your current trade:
  • Don’t let the trade run to the full opposite extreme.
  • Example described:
    • If long while bigger timeframe is bearish, the speaker may scale out earlier (e.g., around a mid-range (50%) or prior highs) rather than letting it run to the full target.

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Sources / speakers featured

• Justin (the speaker/creator of the video; referenced as “Justin”)