Fair Value Gap Strategy
Fair Value Gap Trading Strategy Cheat Sheet for fluid trades Traders
Last updated
Fair Value Gap Trading Strategy Cheat Sheet for fluid trades Traders
Last updated
Understanding Fair Value Gaps
A Fair Value Gap (FVG) as it’s often referred to, is basically a gap that forms when the buying and selling forces are wildly out of balance.
What causes this mismatch? Well, it could be a ton of things – a major news event, the release of certain economic data, or even hefty trades by big institutions.
Gaps can be up (bullish) or down (bearish).
Entry Strategies
Buy Gaps (Bullish):
Look for stocks gapping up on bullish impulsive movements.
Consider buying near the open or on a pullback towards the gap area.
Sell Gaps (Bearish):
Look for stocks gapping down on negative news.
Consider selling short near the open or on a bounce towards the gap area.
Exit Strategies
Set a target profit level (e.g., 1-2 times the risk) and exit at least a portion of your position.
Use a stop-loss order to limit potential losses (e.g., below the gap area for long trades, above the gap area for short trades).
Risk Management
Start with small position sizes (e.g., 0.5-1% of your account per trade).
Use stop-loss orders to protect against reversals.
Additional Considerations
Monitor the stock's behavior and overall market sentiment throughout the day.
Be aware of potential "gap fade" or "gap fill" scenarios, where the stock may reverse back towards the previous day's close.
Consider using the fluid flow indicator to confirm the trend and identify potential entry/exit points.
Remember, trading involves risk, and it's essential to practice with a paper trading account before risking real capital. Always start small and gradually increase your position sizes as you gain experience and confidence in your trading strategy.
