Fair Value Gap – Boosts Your Trading
What is a Fair Value Gap in Trading?
Anyone trading in forex should be familiar with the concept of the fair value gap. It is the difference between the Price and its fair value is called a fair value gap. These gaps appear when the market price is higher or lower than the actual value then we can expect FVG. Traders spot these gaps for taking buy and sell positions and it makes the trading very simple.
Fair Value Gap Affects on Trading?
Let’s explain this concept with this simple example. If the current price of any currency pair is more than its fair value, then we will say its overvalued. Similarly, if the price is lower than its fair value then we will consider it as undervalued. These FVG gaps predict the next future trend and price movements.
Why does the Fair Value Gap Occur?
There are so many factors which give birth to fair value gaps. These gaps can arise with the change in supply and demand, High Impact News and market sentiment. For example, if there is positive news about any currency pair then this can take the price above its fair value. Similarly, any kind of negative news can push the prices below their fair value.
Types of Fair Value Gap
There are two types of Fair Value Gaps in the Trading Market.
1. Short-Term Gaps: The short-term gaps appear due to the fast market movement and they often close quickly.
2. Long-Term Gaps: The long-term gaps normally arise due to fundamental factors like News and these fair value gaps are filled after waiting for some time.
How to Find Fair Value Gap in Forex Trading?
The fair value gap has a high impact on forex trading because it leads to strong buying and selling opportunities. To find these gaps you should always compare the market price of a currency pair with its fair value. There are a lot of indicators available for traders to find these FVG.
Fair Value Gaps in Crypto Trading
As we know there is high volatility in crypto markets so we can easily find FVG on bitcoin and other coins. You should use these FVG to improve your trading chances in the market.
The Role of Market Sentiment in Fair Value Gaps
Market Sentiment plays an important role in the existence of FVG. In trading, positive news, negative news, and investor behavior influence the whole market sentiment. The trader needs to understand the market sentiment and benefit from these fair value gaps in the future.
Technical Analysis to Find Fair Value Gaps
You can easily find Fair Value Gaps by using the most popular indicators like RSI, Moving Averages, and Bollinger Band. Moreover, If you go to the trading view platform then you can find so many FVG Indicators to use for free.
Can Fair Value Gap Really Predict Exact Price Movements?
In my opinion, fair value gaps are the best way to predict future movements. There is no 100% strategy in the trading market but I have personally found these gaps very effective in trading. We should also consider the other important factors to improve the overall trading experience.
How to Trade Fair Value Gaps?
Buy Signal: We need to find the currency pair that is below the fair price to take a buy position.
Sell Signal: For taking a sell position we need to find the currency pair which is overvalued than its fair price. You should always take second confirmation from other technical indicators before trading.
Mistakes to Avoid When Trading FVG
Many traders do not consider the trend that is going on the higher time frames. We should pay attention to the main market trends. The other factor that influences traders is over-trading. You must understand that these all gaps should not be traded otherwise it will be the biggest mistake.
FVG Indicators
There are two major platforms where you can find indicators about FVG. Trading View is my favorite Charting Platform and you can also find free FVG Indicators. The other platform is Mt4 and Mt5. You can google free indicators available on web to use on these both platforms.
FVG and Risk Management
If you decide to trade the Fair Value Gap then you need to take proper care of good risk management. You should always trade with proper stop loss above and below the FVG. The second tip from my side is not to risk your whole trading account in a single trade. You should diversify your investment into different currency pairs, coins, and stocks.
Conclusion
Fair Value Gap is a great way to improve your trading strategy and it can lead to highly successful trades.
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