Mentoria Ep. 5 - MAESTRIA QUE ES FVG FAIR VALUE GAP - SIBI - BISI - ICT CONCEPTS #ict #smc #trading

Understanding Fair Value Gap in Trading

Introduction to Fair Value Gap

• The speaker introduces the concept of Fair Value Gap (FVG), emphasizing its importance in trading and noting a common misunderstanding among traders regarding its definition.

• Clarifies that "BIC" (Buy Side Imbalance) and "CIV" (Sell Side Imbalance) are essentially different terms for the same concept as FVG, which is often misrepresented by various channels.

Definition and Characteristics of Fair Value Gap

• Defines FVG as a price range where liquidity is quickly offered, leading to an imbalance in price. This occurs when prices drop rapidly without sufficient time for balancing.

• Illustrates how price movements typically balance out over time, using examples of green candles rising and falling to demonstrate this principle.

• Explains that an FVG exists between the first and third candle where their wicks do not touch, indicating a gap or imbalance.

Misconceptions About Fair Value Gap

• Critiques other educators who incorrectly separate BIC and CIV from FVG, asserting they are all part of the same concept according to ICT's definitions.

• Discusses ICT's perspective on FVG as an inefficiency or imbalance in pricing, highlighting that BIC and CIV are merely categorizations within this framework.

Categories: Buy Side Imbalance vs. Sell Side Imbalance

• Introduces BIC (Buy Side Imbalance) and CIV (Sell Side Imbalance), explaining their meanings: BIC indicates an imbalance on the buy side while CIV indicates an imbalance on the sell side.

• Emphasizes that both terms refer back to FVG but categorize them based on market direction—upward for BIC and downward for CIV.

Visual Representation of Imbalances

• Describes how imbalances can be visually represented with lines between candle wicks, illustrating areas where price has not balanced due to rapid movement.

• Reiterates that these visual gaps signify imbalances; if prices had balanced properly, there would be no gap present.

Understanding Inefficiencies in Price Movement

• Explains how inefficiencies occur during price movements; specifically focusing on how certain wick formations indicate whether a gap exists or not.

Understanding Candle Formation and Market Imbalances

Candle Behavior and Timeframes

• The discussion begins with the explanation of a candle's behavior in trading, noting that insufficient buyers led to a decrease in price.

• A daily candle is described, detailing its movement from 8 PM to midnight, illustrating how it fluctuated throughout the day.

• Emphasis is placed on the importance of understanding candle formation for new traders, highlighting the need for clear explanations.

• The speaker plans to use labels to clarify how candles are created, indicating this will be revisited in future sessions.

• The concept of fair value gaps (FVG) is introduced as crucial for understanding market movements.

Price Movements and Inefficiencies

• An explanation follows about how candles reflect buying and selling pressures; a bearish candle opens lower but can close higher if buying pressure exists.

• The significance of closing prices is discussed; a daily candle must close by 11:59 PM to complete its cycle properly.

• The relationship between opening prices and subsequent movements is analyzed, showing how inefficiencies can lead to price fluctuations.

• A detailed breakdown of bullish and bearish candles illustrates how they form based on market activity during specific timeframes.

Imbalance Concepts

• Sell-side imbalance (SIB) and buy-side inefficiency (BSI) are defined; these concepts explain why certain price levels fail to hold due to lack of buyer interest.

• The speaker references Michael Hudson’s teachings on market inefficiencies, emphasizing their rarity in common trading discussions.

• Clarification that sell-side imbalances relate directly to fair value gaps reinforces the interconnectedness of these concepts within trading strategies.

Recap and Key Takeaways

• A summary reiterates that bullish candles open low and close high while bearish ones do the opposite; this fundamental difference underpins trading strategies.

• Discussion highlights how rapid price changes create imbalances in buying or selling pressure, affecting overall market dynamics significantly.

• Examples illustrate inefficient sales leading to downward pressure when sellers dominate over buyers at critical points.

Understanding Fair Value Gaps

Introduction to Fair Value Gaps

• The speaker introduces the concept of "fair value gap" and categorizes it as a "buy side imbalance" or "sell side inefficiency."

• Clarification is provided on the terminology, emphasizing that understanding these concepts is crucial for practical application.

Theoretical Foundations

• The speaker explains that price tends to balance out over time, indicating areas where future entries may be made.

• A fair value gap acts like a vacuum, drawing prices back to it regardless of their current position in relation to the gap.

Properties of Fair Value Gaps

• Three key components of a fair value gap are introduced:

• Premium zone (expensive area)

• Discount zone (cheaper area)

• Consequent encroachment (highly sensitive reaction zone).

• Emphasis is placed on the consequent encroachment as the most attractive area for price reactions, which can yield significant trading ratios.

Practical Application

• The speaker stresses the importance of recognizing these zones in trading videos and analyses from ICT (Inner Circle Trader).

• Consistency in terminology is highlighted; premium and discount zones are applicable across different contexts within fair value gaps.

Identifying Fair Value Gaps in Practice

• Transitioning to practical examples, the speaker suggests analyzing weekly timeframes for identifying fair value gaps.

• An example is presented where a specific fair value gap is identified based on previous price imbalances.

Conclusion and Further Examples

• The discussion continues with further examples illustrating buy-side imbalances and sell-side inefficiencies.

Understanding Price Balancing in Trading

The Concept of Price Balancing

• The speaker discusses the duration it takes for price to balance, noting that it can take several months to achieve equilibrium.

• An example is provided where the price balances perfectly over time, emphasizing that larger timeframes tend to show more accurate balancing.

• The importance of completing a fair value gap (FVG) within the timeframe being analyzed is highlighted; it will inevitably be completed at some point.

Practical Application and Analysis

• The speaker encourages participants to review price movements together, indicating a collaborative approach to understanding market behavior.

• A specific trading concept called "consequent encroachment" is introduced, likening it to quickly pulling a hand from boiling water due to its sensitivity.

Reaction Zones and Trading Strategies

• Consequent encroachment zones are identified as areas of high reaction in price movement; traders should consider entering positions when these zones are reached.

• The discussion includes strategies for entering trades with minimal risk, highlighting potential high reward scenarios based on market trends.

Importance of Fair Value Gaps

• Fair value gaps are described as critical areas where price reacts strongly; they often do not touch with body candles but rather with wicks.

• It’s noted that unbalanced fair value gaps indicate areas needing future correction or balance in pricing.

Learning and Practice Recommendations

• Participants are encouraged to analyze their charts regularly and identify key concepts like CIV (Consolidation Invalidation Value).

Understanding Smart Money Concepts

Introduction to Smart Money Concepts

• The speaker introduces the concept of Smart Money, emphasizing its importance in trading strategies. They mention that this approach is linked to ICT (Inner Circle Trader), a group founded by Michael.

• The speaker encourages viewers to focus on understanding Smart Money concepts, suggesting that it will lead to profitability in trading.

Observations on Trading Channels

• The speaker reflects on various trading channels they have observed, noting that many traders are sincere but often lose money despite showing their positions.

• A specific example is given regarding reactions at key indicators like BWAP and trend lines, questioning why traders react at these points without proper reasoning.

Misunderstandings in Price Action

• The speaker critiques common practices among traders who rely heavily on indicators such as EMAs (Exponential Moving Averages), arguing that price action should not be dictated solely by these tools.

• They emphasize the need for a deeper understanding of price delivery rather than following arbitrary rules based on indicator touchpoints.

Importance of Learning from Basics

• Viewers with prior knowledge of other trading strategies are encouraged to start fresh with ICT concepts from the beginning of the channel's content.

• The speaker asserts that this foundational knowledge will enhance their ability to read price action effectively.

Conclusion and Call to Action

• The speaker expresses gratitude towards viewers and invites them to share the channel with friends interested in learning about Smart Money concepts.