Lesson 22: High-Probability Setups (Fair Value Gaps & Premium/Discount)

Part of Module 6: Advanced Strategy & Smart Money Concepts

Introduction: Refining Your Entry Points

In the last lesson, we learned to identify Order Blocks. Now, we'll learn two advanced concepts that help us refine these large zones into highly precise areas of interest: Fair Value Gaps and Premium/Discount levels.

Fair Value Gaps (FVG) / Imbalances

A Fair Value Gap is a three-candle pattern where there's a large gap between the wick of the first candle and the wick of the third candle. It's caused by a very fast, aggressive price move that leaves an "inefficiency" in the market.

Analogy: A Pothole in the Road. Think of price as a road being paved. If the paving happens too quickly, it can leave a pothole. Price has a natural tendency to "rebalance" itself by returning later to fill this "pothole" (the FVG) before continuing on its way.

Premium vs. Discount Zones

This is a simple but powerful concept that tells you if the market is "expensive" or "cheap" within a specific trading range. We use the Fibonacci tool and focus only on the 50% level (the Equilibrium).

  • Premium (Expensive): The area above the 50% level. You should only be looking for selling opportunities here.
  • Discount (Cheap): The area below the 50% level. You should only be looking for buying opportunities here.

Analogy: Shopping. You want to buy things when they are on sale (at a discount) and sell things when their price is high (at a premium). This tool helps you see when the market is offering you a good price.

Putting It All Together: The A+ Setup

You can combine all these concepts to find the highest-probability trading setups. A perfect buy scenario would be:

  1. The market is in a clear uptrend (BOS).
  2. You have identified a valid Bullish Order Block.
  3. That Order Block is in a Discount zone (below 50%).
  4. You see a clean Fair Value Gap (FVG) inside that Order Block.

When all these factors line up, you have an extremely strong reason to look for an entry when price returns to that zone.

Previous Next Lesson