Video Transcript:
A breakaway gap is just a fair value gap that we do not expect to come back and get filled. So what do I mean by that? This is a fair value gap. Always look at the third candle. If the third candle is not an expansion candle too, like this one isn’t, we can expect price to come back into this fair value gap, which it does. All right. So this is a breakaway gap right here because the third candle is an expansion candle, and when you have that, there’s a lower probability of price coming back to that after this. So what we would do is drop time frames after this candle closes and see if we can find a 4-hour or 1-hour fair value gap to play off of here to go higher. Same thing right here. That’s a breakaway gap. Why? Because the third candle is an expansion candle. This is not a breakaway gap right here. Why? Because the third candle did not expand below. It broke the low and kind of hung out at the end. So that’s why price moved back up into that, and we can expect a higher probability of price coming into that fair value gap.
Basically, what this theory does is help ensure that you don’t miss a move like this because you were waiting for price to come back into a daily fair value gap, which it never does. So, if you understand that you have a breakaway gap right here and you invert this fair value gap with a breakaway gap, you now know that coming back into this gap is not a high probability. What you’ll do then is that on this move lower, you’ll look for a lower time frame gap like a 4-hour or a 1-hour. And you know what, let’s do that. All right. So we have a daily gap here. This closes here. We’re not coming into this gap because it’s a breakaway — invert this fair value gap. This is the breakaway gap right here because the third candle is an expansion. So now we need to look for a lower time frame. So let’s go to a 4-hour.
Okay. So on the 4-hour I now have a fair value gap that I can play off of, right? I don’t have to worry about coming into this daily. I now have a 4-hour fair value gap that I can go long off of to go higher. There’s my dip into the fair value gap that I want to go higher. And understanding a breakaway gap is very important because if you don’t notice a breakaway gap and we’re always looking to deliver from something, it may never retrace. Well, I don’t want to say never — just lower probability. So when you have a breakaway gap, you go down to a lower time frame. All we did was go down from the daily to a 4-hour time frame to find a fair value gap that’s above, and we can create and formulate a trade off of it. And what did it do? It came in here. Okay. And then we can even drop down to a 15-minute if we wanted to and find an opportunity to buy. That’s the price action in the 15-minute. Now we have some gaps here. So maybe we want to go a little higher. Maybe go to a 30-minute. Still have more fair value gaps. Let’s go to an hourly. Okay. And on the hourly we have, well, it’s kind of a double here, but you can use this as a double fair value gap. And there’s your entry. There’s your inverted fair value gap right here coming out of a 4-hour fair value gap using a 1-hour entry inverted fair value gap out of it. There’s your entry.
Hey everyone, it’s Dale here. I hope you enjoyed the video. If you’d like to trade alongside me and our team of prop firm funded traders every day, then click the link below the video and hop aboard. We’re looking forward to trading with you.
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