The MOST Powerful PD Array - Fair Value Gaps - Trading 104

Summary

The presenter teaches fair value gaps (FVGs) as a central tool in an ICT-style trading framework. He uses them to identify price expansion, build directional bias, find continuation entries, and assess when a trading idea has been invalidated. The lesson focuses on reading price action rather than company fundamentals or long-term investing.

FVG Definition and Role

An FVG is a three-candle formation in which the first and third candles do not overlap:

• Bullish FVG: The third candle’s low remains above the first candle’s high.
• Bearish FVG: The third candle’s high remains below the first candle’s low.

The presenter suggests ignoring the middle candle when checking for overlap. Candle wicks count as the high and low. If the outer candles overlap, he describes the price action as rebalanced rather than a valid FVG.

In his framework, an FVG indicates that price moved quickly in one direction, leaving an imbalance. FVGs help identify expansion and are used mainly for continuation trades; swing highs and lows are more commonly used for reversal setups. FVGs can also be refined across timeframes: a gap on a higher timeframe may correspond to a swing high or low on a lower timeframe.

Trading Framework

• Build a directional narrative: Look for FVGs forming in the direction of price expansion. The presenter generally prefers trading with that expansion and toward an identifiable liquidity target, such as a relevant high or low.
• Check the surrounding context: A gap by itself is not a trade signal. Consider whether price is expanding, whether there is a relevant target, and whether the FVG aligns with a meaningful swing.
• Refine the level: Compare timeframes to identify the relevant swing within or around an FVG. Avoid relying on a gap or swing that would leave a relevant swing untouched or create what the presenter calls a “failed swing.”
• Use range equilibrium (EQ): The presenter uses the midpoint of a range to judge whether price has moved deeply enough to support a change in bias. A move through EQ followed by an FVG in the new direction can support a new directional expectation.
• Treat FVG signals as bias, not automatic entries: A gap crossing EQ can establish an expectation toward a key level, but it does not guarantee that price will reach that level. The presenter advocates waiting for additional confirmation and a suitable reaction at the level.
• Look for confirmation: Examples include SMT divergence, displacement, a V-shaped reaction, suitable wick size, alignment across correlated assets, and alignment with the trading “profile.” The lesson does not define a complete entry or risk-sizing system.
• Avoid countertrend trades without evidence: A single bearish FVG during a clear upward expansion is not, by itself, enough reason to sell. For a countertrend idea, the presenter looks for stronger evidence, such as a move through EQ and a higher-timeframe FVG in the opposing direction.
• Watch the reaction at the level: The preferred response is an immediate expansion away from a key level. If price pushes through the FVG or fails to react as expected, the setup or original idea may be invalid.
• Do not “marry” a bias: Reassess when opposing expansion and FVGs appear, particularly when they form across EQ. Consolidation with gaps but no sustained expansion is not considered a valid expansion setup.

Recommended Study Exercise

1. On the daily chart, mark FVGs from the previous 2–3 months.
2. Check intraday whether each gap aligns with a relevant swing. Prioritize the relevant swing if they do not align.
3. Observe whether price reacts immediately at the gap and whether the expected expansion follows.
4. Mark current, unfilled gaps and observe price behavior around them over the following week.
5. When many gaps appear, adjust the timeframe to simplify the chart and identify a larger gap, then refine it to the relevant swing.

Assets, Instruments, and Terms Mentioned

• Equity indices and futures: Nasdaq E-mini (NQ), S&P 500 / E-mini S&P (ES)
• Commodities: Gold, platinum, crude oil
• FX: Euro–U.S. dollar (EUR/USD), pound–U.S. dollar (GBP/USD, referred to as GU)
• Timeframes: 15-minute, 50-minute, 1-hour, 4-hour, 6-hour, 90-minute, daily, weekly, and monthly charts
• Technical concepts: Fair value gap (FVG), inverted fair value gap (IFVG), PD array, swing highs and lows, liquidity, equilibrium (EQ), premium/discount, SMT divergence, displacement, and price fractalization across timeframes

Key Numbers, Cautions, and Disclosures

• No specific entry prices, price targets, yields, valuation multiples, returns, or performance statistics are given.
• The stated study periods are 2–3 months of daily-chart history and one week of observation.
• The presenter cautions that FVGs and reversals are not standalone trading signals, and a gap does not guarantee that price will reach the next key level.
• No explicit “not financial advice” disclaimer is stated.

Presenter/source: Erik, the channel presenter (identified as “erik”; the subtitles also render the name as “Eric”). The presenter references ICT as a source associated with the FVG concept and a painting analogy.