PLAYBOOK #18 / 25
SMART MONEY CONCEPTS
Fair Value Gaps (FVG): Trading Market Imbalances & Inefficiency Magnets
Target Win Rate
69% - 75%
Target RRR
1:3.0 to 1:5.0
Execution Bias
IMBALANCE FILL (CE)
Best Assets
NQ, BTC, XAUUSD
1. Market Mechanics of a 3-Candle Imbalance
A Fair Value Gap (FVG) occurs when institutional algorithms enter with immense size, displacing price violently in one direction. A standard 3-candle sequence defines the gap:
- Bullish FVG: The high of Candle 1 does not overlap with the low of Candle 3. The empty space created by Candle 2 is the Fair Value Gap.
- Consequent Encroachment (CE): The exact 50% midpoint of the gap. Algorithms treat this CE line as the primary magnetic rebalance zone.
2. Precision Entry & Stop Placement
Entry: Place limit orders at the top boundary of the Bullish FVG or at the 50% Consequent Encroachment line.
Stop Loss: Place strictly below the low of Candle 1 in the 3-candle sequence (invalidation point).
Take Profit: External Buy-Side Liquidity (BSL) highs.
INSTITUTIONAL TRADE SPECIFICATION
Asset: NQ Futures / E-mini Nasdaq (15M Chart) • Bias: Bullish FVG Fill
Entry: 19,820.00 (50% CE Gap Fill) • Stop Loss: 19,775.00 (45.00 Pts Risk)
Target 1: 19,910.00 (1:2.0 RRR) • Target 2: 20,000.00 (1:4.0 RRR)
Entry: 19,820.00 (50% CE Gap Fill) • Stop Loss: 19,775.00 (45.00 Pts Risk)
Target 1: 19,910.00 (1:2.0 RRR) • Target 2: 20,000.00 (1:4.0 RRR)
Target Win Rate
65% - 72%
Target RRR
1:3.0+
Execution Bias
CONFIRMATION