Full transcript
0:00hey Traders and welcome to another
0:01episode of smart risk one of the most
0:04challenging steps in trading is setting
0:05up entry points in the market especially
0:08for smart Money traders it can be
0:10particularly challenging because many
0:12smart Money traders are unsure whether
0:14to use fair value gaps or order blocks
0:16to execute trades in the market in this
0:18Advanced episode we're going to clarify
0:21these doubts and explain the scenarios
0:23and price actions where each method
0:24shines we will delve into the key points
0:27and criteria that you need to consider
0:29in your trading strategy
0:30to choose the best possible entry method
0:32in the market for executing trades
0:34ultimately leading to more winning
0:36trades so Traders if that's something
0:39you're interested in please give this
0:41video a thumbs up to show your support
0:43and subscribe to our Channel if you are
0:44new see you after
0:46[Music]
0:55intro welcome back Traders so let's get
0:59started as you know guys order blocks
1:01and fair value gaps are two areas that
1:03smart Money traders use as entry points
1:05to execute their positions in the market
1:08however there is often confusion among
1:10Traders about which of these areas
1:12offers a higher probability and is more
1:15likely to be respected by the
1:18price here we have an example where the
1:21price hits the higher time frame order
1:23block but not the lower time frame order
1:25block this highlights a key point that
1:27needs to be considered if the price
1:30frequently misses your entry it suggests
1:32too much refinement is taking place now
1:35let's take a closer look at this
1:36example we see that the price was in a
1:39downtrend until price reversed its
1:41direction pushed higher and after taking
1:44out the inducement level eventually
1:46created a change of character by
1:47breaking and closing Above This major
1:50high with the emergence of a change in
1:52character indicating an upcoming bullish
1:54Trend we look to enter the market by
1:57opening a long position now where do we
2:00look to go long on this
2:01chart firstly we need to identify the
2:04discount
2:05Zone which includes these higher and
2:08lower time frame order blocks inside it
2:11if you truly wanted to enter the trade
2:13and place a buy position based on the
2:15higher time frames order block you could
2:17have simply entered a buy limit order at
2:19the highest point of the higher time
2:21frames order block with the lowest point
2:23of the order block area as your stop
2:25loss this approach would have allowed
2:27you to enter the market and the price
2:29would like have moved upward after
2:31activating your bu limit order however
2:34it's important to note that setting such
2:36an entry would result in a very large
2:37stop loss leading to a small reward to
2:40risk ratio in every trade this exposes
2:43you to higher potential losses if the
2:44trade moves against you if you aim to
2:47have a Tighter stop-loss and a higher
2:49reward to risk ratio you need to refine
2:51your entry area many Traders often focus
2:54on the extreme lower time frames order
2:56block at the bottom as seen in most
2:58analyses this approach may seem perfect
3:01because it offers a very tight stoploss
3:03and already provides a high reward to
3:05risk ratio however if the extreme lower
3:08time frames order block were hit every
3:10single time the market would appear as a
3:12zigzag pattern everywhere which is not
3:15realistic because price does not often
3:16make such deep retracements so what is
3:20the solution for this many times order
3:23blocks are not respected but what is
3:25often seen in scenarios like this is
3:27that the fair value Gap is respected
3:28quite often especially in lower time
3:31frames now let's bring everything
3:33together and consider what price is more
3:35likely to do when it reaches the order
3:37blocks in Fair Value gaps under various
3:41circumstances so in the higher time
3:43frames like 1 hour or 4H hour time frame
3:46the price is more likely to respect the
3:48order blocks rather than the fair value
3:51gaps on the other hand in the lower time
3:54frames price is more likely to respect
3:56the fair value gaps rather than order
3:58blocks located at the extreme a
4:00areas before we continue if you're
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4:38description so let's imagine that price
4:40creates a structure like this one on the
4:42lower time frame as we mentioned before
4:45on the lower time frame like 15 minute
4:47or 5 minute the price is more likely to
4:50respect the fair value Gap that is
4:52formed below or above the order blocks
4:54and get reversed from it before
4:56mitigating the lower time frames order
4:57block which is located at the
5:00stream the idea of using lower timef
5:02frame fair value gaps to determine entry
5:04points can be quite effective setting up
5:07entries based on Fair Value gaps often
5:09results in a higher hit rate compared to
5:11extreme order blocks however when using
5:14fair value gaps to enter the market in a
5:16bullish scenario we typically place our
5:18limit order at the highest point of the
5:19fair value Gap and our stop loss should
5:22be positioned below the extreme order
5:25block this approach results in a wider
5:27stop loss which directly reduces the
5:29reward to risk ratio of the
5:33trade setting a tighter stop loss just
5:35below the lowest point of the fair value
5:37gaps can be an option however this
5:40approach does expose trades to higher
5:43risk the extreme order block situated
5:45below the fair value Gap area might
5:47still influence price action leading to
5:50a downside movement that triggers the
5:52stop loss therefore while a tighter stop
5:54loss may seem appealing it's crucial to
5:57carefully consider the potential risks
5:59involved before implementing this
6:02strategy as mentioned earlier on higher
6:04time frames we primarily focus on order
6:07blocks for entries even though Traders
6:09can still stick to solely relying on
6:11order blocks on Lower time frames
6:14however it's essential to consider that
6:16following this approach may cause
6:17traders to miss out on numerous trading
6:21opportunities now we have already
6:23discussed the scenarios that we might
6:24encounter in the market where the price
6:26respects order blocks fair value gaps or
6:29both
6:30however in the market we might encounter
6:32another scenario where the price does
6:34not respect any of the order blocks and
6:36fair value gaps let's delve into this
6:38specific scenario and see what the main
6:40reason behind it
6:44is most probably you found yourself in a
6:47situation where you identified A Perfect
6:49Trading setup and a great opportunity to
6:52enter the market once all the criteria
6:54of your trading strategy are met you've
6:56also identified a perfect trade setup
6:59and you were eagerly waiting for the
7:00price to fulfill your pending order
7:02which was placed on the fair value Gap
7:04or order block you identified earlier
7:07you were getting excited about having a
7:09perfect trade but somehow the price
7:12continued in the direction you were
7:13about to open positions aligned with
7:16without activating your pending orders
7:18placed on the extreme of the fair value
7:20gap or the order block eventually you
7:23missed the trade the main reason why the
7:26price is likely to behave in this manner
7:28is that it creates a significant
7:29inefficiency when attempting to retrace
7:31back to the fair value Gap or order
7:33Block located at the extreme in such a
7:36scenario as the price creates a
7:38substantial inefficiency on its way
7:40towards the extreme order block or fair
7:42value Gap it struggles to resist the
7:44massive liquidity voids behind it
7:47therefore it experiences a pause to fill
7:49the liquidity voids caused by the
7:52inefficiency however as the price
7:54retraces back and aligns with its
7:56dominant Direction it fails to push in
7:58the opposite direction to activate
8:00pending orders located at the order
8:02block or extreme fair value Gap this is
8:05because when the price aligns with its
8:07dominant and primary Direction it
8:09absorbs the significant momentum from
8:11the orders executed by Traders who
8:14anticipate that the pric is retracement
8:16phase is over and it's time for the
8:18price to continue in its primary
8:20Direction the series of actions Propel
8:23the market in the Price's dominant
8:24Direction without activating limit
8:26orders at the order blocks and fair
8:28value gaps
8:31if we examine this trade example in the
8:33euro dollar pair we see that the price
8:35is in a downtrend and is already
8:37established a bearish break of structure
8:39by breaking and closing below the most
8:41recent major
8:42low as Illustrated there's an order
8:45block at the extreme and we can also
8:47identify a fair value Gap just beneath
8:50the order block we can take advantage of
8:52these areas as entry
8:54points as we analyze the chart we can
8:57see that the price has begun to retrace
8:59back to down toward our identified order
9:01block and fair value Gap at the
9:03extreme however the price changes its
9:05direction before reaching these
9:08zones the main reason for this change in
9:10Direction lies in the inefficiency that
9:12has been formed within the retracement
9:15wave let's consider a general trading
9:17example where we bring together various
9:19Concepts discussed previously in this
9:22episode here we have the euro dollar
9:2415minute time frame displayed on the
9:26screen we see that the price moved lower
9:29and also mitigated the 1-hour time
9:31frame's demand area which is situated
9:33below the liquidity pool formed by the
9:35equal
9:38lows upon zooming into that area we
9:41noticed that the higher time frames
9:42demand Zone was respected following the
9:45mitigation of the higher time frames
9:47demand the price pushed to the upside
9:49and after taking out the inducement
9:50level broke out and closed above the
9:52most recent major High thus creating a
9:55valid change of
9:57character in The Next Step we are
9:59exploring potential entry points to go
10:01long the first entry opportunity here
10:04would have been at this order block
10:05situated at the extreme let's say that
10:08we missed this entry where would you
10:10look to enter
10:12long we see that the price has made
10:14another bullish movement to the upside
10:16and has also created a bullish breakout
10:18of structure confirming that the price
10:21has changed its direction to bullish now
10:24as we start to look for an entry we have
10:26two options to consider the usual
10:29approach approach used by many Traders
10:31is to use the order blocks at the
10:33extreme side here we have an imbalance
10:36that needs to be filled and this order
10:38block is situated under the fair value
10:40Gap our entry strategy would be as
10:42follows we wait for the price to retrace
10:45back down to activate our by limit order
10:48which has been placed at the highest
10:49point of the order block area and then
10:51push to the
10:52upside in the second option we are
10:55considering entering the market from the
10:56fair value Gap area this approach is
10:59commonly seen in lower time frames when
11:02entering from the fair value Gap it's
11:05important to consider a key point you
11:07could place your entry at the highest
11:09point of the fair value Gap and set your
11:11stop loss just below the fair value Gap
11:13area while this strategy can be
11:15effective at times it's important to
11:17note that your stop loss will be very
11:19tight additionally since we have an
11:22unmitigated order block at the extreme
11:24there is a possibility that the price
11:26could push downward to fill it so our
11:29recommend keeping your stop loss a bit
11:31wider by placing it beneath the order
11:33block the whole point of this type of
11:35Entry is to reduce the possibility of
11:36missing a trade although it does reduce
11:39the reward to risk
11:41ratio now let's consider what would have
11:43happened with both of the trades for the
11:45first option if we had waited for that
11:47order block this is what would have
11:49happened let's say that we already had
11:51our takeprofit set at this high it's
11:54clear that we would not have entered
11:55this trade since the price couldn't
11:57activate our by limit order
12:00if we had entered from the fair value
12:02Gap our buy limit order would have been
12:04activated and our takeprofit would have
12:06been hit by the price we can see that
12:08the trade played out without pulling
12:10back to the extreme order
12:13block that's it Traders thank you for
12:15watching this video I hope you found it
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