[0:00]Welcome to ICT for Dummies, Episode 5. We just did four. No, you fuckin' idiot. We just read. You're so fuckin' retarded. You're so retarded. You're so retarded. It's episode five, guys. Welcome to fair value gaps. This is where price attracts. Yeah, welcome to fair value gaps. Fair value gaps. Price taps into, usually reacts. It doesn't matter if you're green or red. Green or red, homie. Doesn't matter if you're black or white. Black or white. We have like charts that are also like black and white and we don't discriminate. All right. So, for this video, we're going to be going over fair value gaps. What exactly is a fair value gap? So, a fair value gap is basically just an imbalance in price. So, when price has huge movements in the market, we leave behind imbalances. Imbalances are from an inefficiency of orders getting filled. So, what price tends to do is trade back into these inefficiencies and use them as areas of support or areas of resistance. So, there's two different types of fair value gaps. We first have here a sell-side imbalance. This is a bearish fair value gap, also known as a SIBI, a sell-side imbalance. And what a fair value gap essentially is, is when the low of the first candle's wick doesn't overlap with the high of the third candle's wick. Or in a bullish sense, the high of the first candle's wick doesn't overlap with the low of the third candle's wick. Here, we have it broken down into really five main components that make up a fair value gap. So, it is a three-candle sequence. In order to create a fair value gap, you need at least three candles. Uh, candle one and three's wicks do not meet, which obviously you can see right in front of you. It is an imbalance in price. It acts as a magnet and delivers price in corresponding direction. So, a sell-side imbalance, what this really means, is the market is trying to tell you that it wants to go lower. A sell-side imbalance shows displacement towards lower prices, right? This is a very fast move where orders aren't filled. Okay guys, so what a fair value gap is trying to tell you is that it wants to either go for lower prices or it wants to go for higher prices. So, a bearish fair value gap is showing displacement. It's the market telling you that it wants to seek lower prices. And what a bullish fair value gap is trying to tell you is that it wants to seek higher prices. To get this sell-side imbalance, you can expect it to target things like sell-side liquidity. And what a bullish fair value gap is showing is bullish displacement in the market. It is telling you that price wants to seek higher prices, and this could be, for example, buy-side liquidity. So, if you got super freaking confused with what Blake was saying before, with efficiencies and shit, and nothing really made sense in your head, all you need to know is that there is an imbalance in price that needs to be corrected, right? So, as you can see here, if we drag out the low of this wick, you can see that it doesn't overlap with the high of this candle's wick, creating this imbalance. There is a gap between the low and the high, meaning that is a bearish fair value gap. And if we do the same thing over here, the high of this first candle's wick doesn't overlap with the low of this candle's wick right here, meaning that is a fair value gap. So, as you can see here, this is not a fair value gap. Why? Because the low overlaps with this candle's high. And as you can see, there's a wick that overlaps, meaning that there's no imbalance in price, and this is not what a fair value gap looks like. And then as you can see here, this is also not an example of a fair value gap. Because this candle wick's high overlaps with this candle wick's low. So, this is not an example of a fair value gap. You need spacing between the wicks. So, I decided to make you a compilation. So, here on the right, we have essentially from the beginning of a fair value gap formation to when price actually trades into it and reacts, right? Because what does price do? Price first creates the imbalance, price trades into it, and then it reacts. So, as you can see here, we have the formation, right? You have candles one, two, and three. Here, we are talking about in a bullish sense. Uh, what happens is you have that separated wicks between candles one and three. You can see that the high of candle one and the low of candle three, both of these wicks do not meet, and you can see that right here, right? Unlike this, where they're overlapping. Right here, they are not overlapping.
[3:59]Third, you have the actual imbalance/fair value gap. So, once you can identify that these wicks are not meeting, you can mark out this actual imbalance/fair value gap. Price will typically trade into these levels, which you can see illustrated here with a red candle trading into this fair value gap, and then you can see that price reacts, right? So, if we're trading into a bullish fair value gap, what are we expecting? We're expecting a bullish reaction and for price to continue trading higher. So, let's say you're looking at a bullish chart, right? All bullish price action is going to contain some sort of retracements. When price retraces, it's typically to fill an imbalance. It's typically going to hit a fair value gap, right? So, in order for price to continue higher, it needs to trade back towards these imbalances and then it will continue delivering higher. And why price is doing this is again, to fill orders. There's going to be an imbalance of orders. And once price retraces into this imbalance, that is where orders get filled. The same goes for a bearish sense, right? If you are looking at a bearish chart, with bearish price action, you're going to notice that as price is delivering lower, it is still retracing, correcting these imbalances, filling these orders, and then it continues to deliver lower. If you're looking at a bearish chart, this is what you're most likely going to see. You're going to see price is going to trade lower, hit these fair value gaps and then continue trading lower, right? Price trades up, hits fair value gap, continues lower. Price trades up, hits these bearish fair value gaps, continues trading lower, right? And this happens over and over and over, and it will continue to push price lower. The same is going to apply in a bullish sense. If you're looking at bullish price action, you're going to notice that price will deliver higher, retrace into these bullish fair value gaps, and then continue higher, right? You'll see this all the time. Now, let's show you the difference between what a fair value gap and not a fair value gap looks like in real time. All right, so now we're going to play through price and show you what fair value gaps actually look like on the chart. So, I want you guys to know also that there doesn't actually have to be a wick. As you can see here, this body does not overlap with this candle's high here and this is still a fair value gap. You can imagine there being a wick here and as you can see, these wicks do not overlap, making this a bearish fair value gap. Another bearish fair value gap right here. And as you can see here, this is not a bearish fair value gap. Why? Because this wick overlaps with this candle's wick right here. So, this is not a bearish fair value gap. Then trade into this bearish fair value gap. And as you can see here, we then created a bullish fair value gap. Why? Because candle one's wick does not overlap with candle three's wick. As you can see, this is a bullish fair value gap or a Bisi, a buy-side imbalance. Because candle one's wick does not overlap with candle three's wick, right? The high of candle one's wick does not overlap with the low of candle three's wick, making this a bullish fair value gap. And as you can see here, there are no fair value gaps getting made because all of these wicks are overlapping. And now for the most commonly asked question, does the size of a fair value gap matter? Well, to answer your question. Yo, yo, yo! No, it doesn't, guys. It's all about the emotion of the ocean, right? Any fair value gap can deliver price where it needs to. So, just know that. Never determine a fair value gap's value by the size. Wow. By its personality. Yes. And as you can see here, we have this bearish fair value gap. All right, little quiz time, guys. Is this a fair value gap?
[7:13]Okay. The answer is, no! This is not a bullish fair value gap, guys. Why? Because the wicks overlap. No imbalance here, guys. Making this not a fair value gap. If you said no, you are correct. If you said yes, we got a little bit more studying to do, all right? Now, question number two, guys. Is this a fair value gap?
[7:42]If you answered yes, you are wrong. You got a little. I'm just kidding, guys. If you answered right, good job! I mean, really congrats, because this is a beautiful example of a bullish fair value gap. As you can see here, the candle one's high of this wick does not overlap with the candle three's low of this wick. And luckily for you, if you can identify the gap within a three-candle pattern, there's a very high chance that you're not wrong. Okay guys, so with fair value gaps, you'll often hear terms like respected or disrespected, where a fair value gap has held or a fair value gap has been inversed. So, what is that actually mean? For a fair value gap to get respected, the body cannot close below the fair value gap. This is in terms of a bullish sense, of course. So, as you can see here, we trade into this bullish fair value gap. The candle has respected this fair value gap. Why? Because the body has not closed below it. And you guys need to be waiting for the candle to actually close on whatever timeframe you're looking at. You'll see candles trade all the way down here, and then the candle will actually wick, and it will not close below the fair value gap. And this is still valid. This is still getting respected.
[9:00]So, please know, even if we have a wick that goes all the way down here, it doesn't matter. As long as the body has held. And you guys will often hear the term that wicks do the damage and bodies tell the story, which is why you have to wait for this candle to close to see if it's actually getting respected or not or disrespected. And what disrespected means is that the candle has closed below this bullish fair value gap. And in a bearish fair value gap, the candle is closed above. So, just to reiterate what Blake was saying, right? Let's look at candle one's high. Candle one's high, this wick right here. Once this candle closes below it, or a candle closes below that wick's high, then the fair value gap is considered invalidated or inversed, right? Clearly, here on the right side, you can see that price closed below this wick's high, disrespecting the fair value gap. And remember, guys, when a bullish fair value gap gets respected, what can you expect? Bullish price action to continue, right? And if a bullish fair value gap gets disrespected, then you can expect bearish price action to continue and for this to then sell off. And I'd say fair value gaps is considerably one of the most important concepts to understand within the whole realm of ICT, because you can really tell where price wants to draw towards, where price wants to go next by seeing if it is respecting or disrespecting fair value gaps, right? So, if price is disrespecting bearish fair value gaps, can you anticipate that price will run higher? If price is disrespecting bullish fair value gaps, can you anticipate that it will run lower? In other words, if price is respecting bullish fair value gaps, it'll run higher. If price is respecting bearish fair value gaps, it'll run lower. The same applies for a bearish sense, guys! The same applies for a bearish sense, guys! A respected and disrespected, the same applies for a bearish sense, guys! So, if you look over on the left, you can see that price, three candle sequence, candle one low, candle three high, do not meet, therefore you create fair value gap. What happens? Price trades into fair value gap and it reacts and therefore the wick respects, the body respects the fair value gap is respected.
[11:25]Where did that go? Holy shit, holy shit. Holy shit.
[11:32]Let's go. Yeah.
[11:36]All right, guys, we're going to have a fucking break dancing competition real quick, baby.
[12:32]All right guys, now lock in, bro. That wasn't funny. And just to give you guys a little bit more context on how to utilize fair value gaps. So, as you guys know, price is fractal. If you don't know what I'm saying, is that everything we are teaching you applies across all timeframes and it is happening all the time, whether it is on the one-minute or the one-hour chart. So, just to put into perspective, if you go onto the hourly timeframe, the four-hour, the one-hour, or if you go into the daily, this is going to be your higher timeframe. And inside the higher timeframe, if you see that higher timeframe fair value gaps are being respected, for example, like hourly bullish fair value gaps, or like four-hour bullish fair value gaps, or like daily, that's going to help you with determining your bias, right? Determining that higher timeframe draw on liquidity. But fair value gaps within like the one and fifteen minute, that's more so going to help you with internal liquidity. It's going to help you determine where price is going to want to go to on the lower timeframe, right? So, really to simplify this, if you see price is respecting bullish fair value gaps in the higher timeframe, you can expect it to trade towards something like previous day highs or previous week highs. Those are some buy-side levels. If you see price respecting bullish fair value gaps on the one-minute chart, or the five-minute chart, or the fifteen-minute chart, you can expect price to trade to those buy-side liquidity levels on the lower timeframe. Why am I saying this? Is because you don't want to base your entire analysis or your entry off like an hourly fair value gap and think that's enough confluence for you to be taking a trade, right? You want to analyze things across all timeframes. So, if you see that price is respecting bullish fair value gaps on the hourly, and then you go into the lower timeframe, and it's also respecting bullish fair value gaps on the lower timeframe. Well, you put two and two together, and now you can anticipate that price wants to run higher and figure out your targets from there. And so, as we mentioned before, fair value gaps are imbalances in price. There are times when price can create these imbalances, without it being exactly a fair value gap, right? Like you can see here, if I play out price action, you'll notice that the candles open it just far higher than they were trading previously here. And this typically happens when a new day of price opens up, and we call this a new day opening gap, right? Similar to a fair value gap, this imbalance is going to attract price. Price will typically react to it, but specifically with new day opening gaps, the one thing to note is that price will typically fill it completely, right? Before actually making the corresponding move. With like a regular bullish fair value gap, you don't need to fill the fair value gap all the way for price to continue trading higher. You can simply tap into it and buy a couple ticks, maybe fill it halfway, maybe a third of the way, and it'll continue trading higher, when in a bullish sense. But with a new day opening gap, you want to see price fill it completely before you can anticipate that price would start trading higher. So, if you play out price action, you can see that that's exactly what happens. This occurs on Mondays. So, at the start of the week, you will see a new week opening gap, most likely, not all the time, but it sometimes happens on Mondays. Then a new day opening gap is just any other day of the week. So, just not Monday. This happens at 6:00 p.m. That is the opening of a new day. Okay, guys, so looking at this chart right here, I want you to identify a bullish fair value gap, and then I also want you to identify buy-side liquidity. Let's see if you remember from that liquidity video that we did last. We'll give you five seconds. Five, four, three, two, one, zero. Bang! There you go. So, as you can see, you have that three candle sequence in the bottom, the wick one, and sorry. The wicks of candle one and candle three do not meet. Therefore, creating that fair value gap, creating that imbalance, and you have that buy-side level above.
[16:06]So, what does this mean, right? We create a bullish fair value gap and we have a buy-side level above. We have some buy-side liquidity. What do we expect? We expect price to trade into this fair value gap and then deliver us towards the buy-side liquidity, right? The fair value gaps are helping you understand the story of price, understand, helping you understand what the narrative is. So, if you play price action forward, you can see price taps into that bullish fair value gap, and what happens? It goes ahead. This occurs on Mondays. So, at the start of the week, you will see a new week opening gap, most likely, not all the time, but it sometimes happens on Mondays. Then a new day opening gap is just any other day of the week, so just not Monday. This happens at 6:00 p.m. That is the opening of a new day. Okay, guys, so looking at this chart right here, I want you to identify a bullish fair value gap, and then I also want you to identify buy-side liquidity. Let's see if you remember from that liquidity video that we did last. We'll give you five seconds. Five, four, three, two, one, zero. Bang! There you go. So, as you can see, you have that three candle sequence in the bottom, the wick one, and sorry. The wicks of candle one and candle three do not meet. Therefore, creating that fair value gap, creating that imbalance, and you have that buy-side level above.
[16:06]So, what does this mean, right? We create a bullish fair value gap and we have a buy-side level above. We have some buy-side liquidity. What do we expect? We expect price to trade into this fair value gap and then deliver us towards the buy-side liquidity, right? The fair value gaps are helping you understand the story of price, understand, helping you understand what the narrative is. So, if you play price action forward, you can see price taps into that bullish fair value gap, and what happens? It goes ahead. So, now with price action played out, what do we notice? We see that price trades into this fair value gap. It does tap it a couple times, but what does it do? It delivers us towards this buy-side liquidity up here. All right guys, and then here, I want you to identify a bearish fair value gap, and then I also want you to identify some sell-side liquidity here. Five seconds.
[16:57]Okay, so if you answered this is your bearish fair value gap, you are correct. This is not a bearish fair value gap. Why? Because these wicks overlap. You can see that there is a lot of displacement and a lot of candles towards this liquidity. And we have liquidity where? Resting in this swing low here. We have more liquidity resting at this swing low. And all of these swing lows are your sell-side liquidity. This is an imbalance. Price is going to trade back up to fill these orders. This is where a lot of sell orders are getting placed. Price trades up, taps into this bearish fair value gap, and then price delivers towards all of this sell-side liquidity. Now, if we look at price action right here, right before that sell-off, what do we notice? We notice that price has been respecting bullish fair value gaps this entire time and delivering price higher. We have this very obvious bullish fair value gap right here, which you can clearly see has been respected multiple times, and price continues to deliver higher. But what do we notice? Eventually price displaces through. We get a body closure below this fair value gap. What does that mean, guys? It's been invalidated. It's been inverse, right? This bullish fair value gap has now been disrespected, and we can now anticipate that price wants to run lower. And as you can see, price continues lower. All right, guys, now watch this. Price is creating bullish fair value gaps, respecting bullish fair value gaps, continuing to trade higher. This bullish fair value gap gets disrespected, we create the three-candle sequence. One, two, three. We have the bullish fair value gap right here. Price trades lower, invalidates this bullish fair value gap. It is now disrespected. And now, price goes lower after disrespecting the bullish fair value gap. And how did we identify that? We have our three-candle sequence right here. Candle one, candle two, candle three. What do we notice? We notice that candle one's wick does not overlap with candle three's wick. Therefore, we create a fair value gap.
[19:54]Immediately after, price displaces higher, disrespects this bearish fair value gap. Also meaning, it got inversed. We also start trading into this bearish fair value gap, and then eventually price inverses this one as well. Both of these fair value gaps get disrespected, and what happens now? Price continues running higher. So, hopefully that helped you understand a little bit more about how price reacts to fair value gaps. What it means for it to get respected, what it means for it to get disrespected, and what does that mean for the overall narrative of price and where it wants to go? All right, guys, and please remember that the timeframe you are on matters. Because again, fair value gaps can occur on every single timeframe. Like the five-minute, the fifteen-minute, the daily, right? And you want to be utilizing that same candle for whatever timeframe fair value gap you're looking at to determine whether it is getting respected or disrespected. You can see here, we have this bullish fair value gap, right? And you want to be looking at this on the five-minute timeframe. Why? Well, if you look at this five-minute fair value gap on the, say, one-minute timeframe, see that the candle has actually closed below this one-minute timeframe. But that does not mean that this fair value gap is disrespected because the candle still hasn't closed on this five-minute timeframe. You can see the fair value gap is actually getting respected on the five-minute timeframe, and we continue bullish price action. So, guys, don't just go on different timeframes to look at whether a fair value gap is getting respected or disrespected. Stay on the timeframe that the fair value gap has occurred in. Okay, and as you guys can see here, we have a bearish fair value gap. And as you can see here, on this five-minute timeframe, this bearish fair value gap is getting respected. And what you don't want to do is go on the lower timeframe, for example, the one-minute, and look at that fair value gap because what you can see here is we actually close above this fair value gap on the one-minute timeframe. Actually close above this fair value gap on the one-minute timeframe. But remember, this is not valid because the five-minute candle has still not closed. And once this five-minute candle has closed, we respect it, and then price trades lower. All right, guys, that concludes our ICT for Dummies, Episode Five, where we teach you how to make money. Fair value gaps. All right, guys, well, we hope you enjoyed that lesson. We are going to be giving you some homework for you to spend 29 hours in a row without eating and finding 150 fair value gaps. No, I'm kidding. But you should definitely spend some time on the charts today or whenever you can and try to identify at least 10 fair value gaps. See whether it is being respected or disrespected. Remember, the bodies are what matters here. Wicks do the damage. Bodies tell the story. Once again, we hope you enjoyed this video. We look forward to seeing you in our next lesson, and we promise you that if you watch this entire series, and you understand everything, by the end of it, you will be ready to make your first million goddamn dollars. All right. We are still starting off a little bit simple. Everything will get more intricate as we go. We'll teach you how to build a model. We'll even show you our model. But for now, we got to start off with the basics. That being said, we'll see you later, boys. Thanks for watching. Make sure to like, subscribe, and comment below. Holy shit, I've always wanted to say that.
