Video Transcript:
Hey guys, it’s Dale here. Today I want to show you how to combine fair value gaps and volume profile. You know, fair value gaps is a concept which has been around like forever. And as a standalone setup, it’s not that great, but when you combine it with volume profile, that’s completely different level. It’s actually my favorite trading strategy to combine fair value gaps and volume profile. I’m using this in my trading every day. Today I’m going to show you how to go about this. Let’s get to it. Fair value gap is concept from smart money trading and essentially it is a formation of three candles. Here is how bullish fair value gap looks like. So as you can see it is formation of three candles. One, two, three. And the thing is that there needs to be a gap between the high of the first candle and the low of the third candle. This is it. This is what’s called the fair value gap. Right? And it doesn’t really matter if the first or third candle are bullish or bearish. Important thing that there’s this gap. All right? So that’s the fair value gap and this is a bullish scenario. What I like to do is I consider this line the beginning of the fair value gap a support. So I like to trade longs from there. Right? So this is the bullish fair value gap. Bearish fair value gap is the same only reversed. So we have three candles. One, two, three. And if the low of the first candle and the high of the third candle don’t overlap, then you have a bearish fair value gap there. This whole area is the fair value gap. And I like to trade from the beginning of the bearish fair value gap which is here. Now let me show you on the chart. So this is a simple price action chart. In here you can see a beautiful fair value gap, a bullish fair value gap. This is candle number one. Then there’s candle number two here. And this is candle number three. And the fair value gap is here. This is the fair value gap. As you can see, the price slowly fills the gap. But where I trade from is this level. This is the beginning of the bullish gap. And that’s a long for me, right? So when the price reaches here, it’s a long from there. Now the bigger the gap, the better. If there is just a small gap, I don’t really consider it a strong signal. For example, here there is a there’s gap right there or right here. There’s also a gap. I don’t really consider those um gaps that I would trade. I look for the big ones. If they are caused by macro news, all the better. Okay, let me show you one more. This is a bearish scenario. So, take a look at here. This is candle number one. Then there’s candle number two. This is candle number three. And here is the fair value gap. All right. So, if you are trading just the fair value gap, you would wait for the pullback and wait for the price to close the gap. Fill the gap completely in here. Then in a short trade scenario, this is the place from which I go short. Now I’m not trading this blindly. I’m combining the fair value gaps with volume profile. Very often I’m able to spot a place where heavy volume zone aligns with fair value gap and those levels are very strong levels. I would say like 90 or at least 80% of all my trades have heavy volumes and fair value very gaps in them. Right? So I really strive to find this combo for my trades because the win rate is way better than trading just with volume profile or just fair value gaps. So anyways, what you see here is actually two examples in one picture. Two good examples here. The first thing I want to show you here is this heavy volume cluster followed by this trend. So this is the volume accumulation setup. Right? Normally you would just you know place the level at the beginning of that heavy volume zone and trade pull back to that. If there is a fair value gap then it’s even better. So this is the fair value gap. It sort of got partly tested here, but it hasn’t got properly filled yet up until this point. Right? And this black line here, which you see, is where I would place the level. Exactly where I would place the level because I really like to place the level at the beginning of the fair value gap. I look for places where the beginning of the heavy volume zone aligns with the beginning of the fair value gap. Right, let me repeat that. This is very very important. The beginning of the heavy volume zone needs to be at the same level. It needs to align with beginning of the fair value gap like in this case. And when they align that represent a strong level in this case a strong resistance. Let me show you the second example on this chart. There’s another strong fair value gap is in here. And the beginning of the fair value gap is here. Right now, if you look at this heavy volume zone, if I was trading this, I wouldn’t be really sure like without the fair value gap, if I was only looking at volumes, I wouldn’t be really sure if I want to trade from the beginning of this heavy volume cluster like this or if you look at it as one big volume cluster and trade from this place. I wouldn’t be really sure. But since I have that fair value gap here, I know that I want to trade from here because the beginning of this bigger volume cluster align with the beginning of the fair value gap. Now, it doesn’t need to be exactly the same spot exactly to the pip, but you know, more or less the same area. So, when they align, it is a strong signal to enter your trade from there. Now, here is another example of this. This is a bullish scenario. We have a trend setup. We have a significant volume cluster in here. So, normally you would just, you know, print a line here and wait for pullback and go long from there. But in this case, we have this beautiful confluence because there’s also a big fair value gap. See, this is it. And this is the beginning of it. So, this is the spot from which I would go long. By the way, most of those examples or I would say maybe even all of them are actual trades that I actually took. So those are not just ideal scenarios which I picked from the chart, but those are real trades which I was trading. I remember trading this one. It wasn’t too long ago. So yeah, anyways, this is the level exact level from which to go long, right? I like to place the level exactly at the place where the fair value gap starts. So that’s here and this is the reaction to it. Now another bullish scenario is here on this fair value gap and trend setup example. Here is the trend setup. This is a significant volume cluster within the trend. And there’s also a fair value gap. This is the fair value gap. And in bullish scenario I trade from here from the beginning of it. As you can see again, it nicely aligns with the beginning of the volume cluster. So, everything’s good. We have a good signal, a good combo of signals actually. So, wait for the pullback here. The gap gets filled and boom, here is our reaction. Now, one last example. And in here, I want to show you how to combine the rejection setup with the fair value gap. The strongest rejection setups are rejections where you have fair value gap in them. So this is the fair value gap because this is a bearish scenario. The beginning of the fair value gap is in here. And as you can see at the same time it is at the same place where the volume cluster begins. Right? So again beautiful combo. Wait for pullback and short from there. This is how the rejection setup and the fair value gap combo is supposed to look like. So that’s about that. I hope you like the video.
If you want to learn more about volume profile trading, get your hands on my custom made volume profile indicators, then head over to my website, it is trader-dale.com. And if you click this button, trading course and tools, it will take you to this page. And in here you can browse my trading education and customade indicators. So that’s for that. Thanks for watching and I’ll see you next time.
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