$100 Daily Earn Up To | What is FVG Trading Strategy?
FVG trading has become a widely used price action technique among traders in the forex market, as well as among those who trade gold and indices. The majority of traders are utilizing concepts associated with the Fair Value Gap (FVG) theory to identify market imbalances created by Institutions and to achieve consistent daily profit targets using this technique. This article will discuss what is FVG trading is, how it operates, and how to implement FVG trading concepts.
Create Demo Account Best Broker What is FVG Trading
It is highly recommended to trade on a demo account with any FVG trading strategy before investing in real money Forex trading (also known as currency trading). By practicing on a demo account, you are able to learn how to interpret price action, how to enter and exit trades successfully, how to implement money management strategies, and ultimately, how to properly manage your risk when trading.
The ideal brokerage firm for FVG trading will offer:
- Low commissions (or “spreads”)
- Quick order execution
- Reliable charting software
- Provides access to trading Forex (foreign currency), Gold & Silver, and index (stock) markets.
Practicing on a demo account will help you build a sense of assurance and discipline while preparing yourself to trade with real cash in the market.
What is FVG Trading?
What is FVG Trading? An acronym for Fair Value Gap. The concept of FVG trading, or Fair Value Gap Trading, is a price action trading strategy that is based on the market imbalance that is created by large amounts of institutional buying and/or selling.
When there is a Fair Value Gap, it means that the price has moved up or down very aggressively and has created a gap between the price movements (candles). This means that when the price was moving, it was not traded at the same fair value as it normally would be.
The market will usually come back and fill in this Fair Value Gap before continuing on with the next move that it makes. In general, FVG trading, or Fair Value Gap Trading, is based upon:
1) Strong, impulsive price moves.
2) Imbalance Zones
3) Price returning to fill in the gap.
FVG trading, or Fair Value Gap trading, is commonly found in smart money/institutional trading models and concepts.
Bullish FVG Buy Setup
A Bullish Fair Value Gap is created when there has been a Very Strong Upside Move.
Criteria for determining if an FVG is Bullish:
A Very Strong Bullish Candle breaks the Structure.
That Bullish Breaking Candle creates a gap between the High of the previous Candle and the Low of the next Candle.
The Market then comes back to “fill the gap”.
Rules for entering with a Buy Trade using this FVG setup:
Identify the Bullish FVG Zone.
Wait for the Market to return to the gap area.
Look for confirmation that the area has been tested, such as a strong bullish candle or a rejection.
Place your Stop Loss below the FVG zone.
Measure Target based on either the previous high or the next Resistance level above.
The best time this setup can be used is during trending Markets.
Bearish FVG Sell Setup
A bearish Fair Value Gap (FVG) develops when there is a considerable downward movement.
Bearish FVG Characteristics
A bearish solid candlestick violates structure.
The gap between a bearish solid candlestick and the subsequent candlestick, therefore containing both candlestick gaps, will be the bearish FVG.
The following outlines how to sell in a bullish market with a bearish FVG:
- Determine the bearish FVG zone.
- Wait until the price enters back into the gap.
- Await bearish confirmation.
- Set your stop loss above the FVG zone.
- Target the prior low or an area of support.
This technique works well in a decreasing trend.
Best Timeframes for FVG Trading
You can trade FVGs across all timeframes, but certain timeframes are more reliable than others.
The best timeframes when trading FVGs include:
The H1 timeframe is used to determine a market’s overall Direction and Structure.
The M15 timeframe is used to find intraday entry points.
The M5 timeframe is used to provide accurate entry executions.
Higher Timeframes support stronger FVG Zones, whereas Lower Timeframes provide favourable Risk-to-Reward entry levels.
Best Session Reasons
The greatest liquidity in the market occurs during the high liquidity times of each trading session. The recommended trading sessions for trading What is FVG Trading? Patterns with the highest quality FVG formations are the London Session, the New York Session, and the London/New York Overlap. During these sessions, the majority of institutional traders are actively trading, and the likelihood of seeing valid FVG formations increases.
Common Mistakes in FVG Trading
A lot of traders who are unsuccessful in FVG trading have made common mistakes.
Please avoid making these mistakes:
-Trading all FVGs without confirming the trend
-Not taking into account the higher timeframe direction
-Entering trades without confirmation
-Entering with large lot sizes
-Having bad risk management
FVG areas are very valuable; however, not all gaps will be successful.
Pro Tips for FVG Strategy
For more consistency when trading with FVG:
Utilize the market structure with FVG
Utilize a higher time frame bias
Only trade setups that have a high probability
Risk 1-2% of capital per trade
Quality over quantity of trades is most important
Discipline and patience will lead to long-term success.
Final Thoughts
By knowing what is FVG trading? You have a better chance of being successful as a trader. The Fair Value Gaps show where there are imbalances in the markets (by institutions) and provide us with an opportunity to trade with high probability if we use them correctly. Fair Value Gaps can put your name on the list of the best traders in the world.