Definition
"A fair value Gap that fails in its function of bullishness or bearishness if it fails it will become an inversion fair value Gap after it comes back to it"
The Mindset Shift
"There's no reason for you to be upset about taking a trade and getting stopped out if you try to use it as an entry to go long and it stops you out you're going to get mad and think everything doesn't work because of that when it should be wow okay I got that wrong all I got to do is sit back and wait when it comes back up and hits it I'll treat it as a shorting opportunity"
Core Insight
"When they fail that gives you Insight that's what a inversion fair value Gap is"
Formation Process
Initial Fair Value Gap Characteristics
"There's only buy side here on this candle passing through... from this candle's low to that candle's High there there's an only buy side it was delivered only here on buy side so what is it missing sell side"
Inversion Trigger Condition
"This becomes an inversion fair value Gap if we trade down but not below this low before returning back to it because that sell side's still there and it would return back to this fair value Gap"
The Repricing Event
"If it drops down it offers that sell side to this candle's high so it reprices to that range low which is this candle's high"
Repricing Mechanics
Balanced Price Range Creation
"So that fair value Gap has been repriced to offer the buy side it's been given here and then sell side so if it moves away from it comes back up what is it going to act as a balanced price range"
Expected Retracement Behavior
"I would like to see it only trade to halfway it can trade up to the highest point but if it tells me no I'm not interested in going all the way to the top of it after moving below it if it hits the low and only stops at midpoint or just below it and then starts to move lower that's exactly what I want"
Signifying Weakness
"It's signifying that the balance price range is not permitting price to come all the way back up to the high of it it need not do that why because we've already traded down to it a little bit"
Mohawk Concept
Definition of Mohawk
"Worst case scenario it can create a mohawk which is a little tiny little deviation above or below a level"
Acceptability of Mohawk
"We allow for it I'm not scared of it I know it's likely to occur if I was fortunate enough to get the fill on that Mohawk that this punch is just above that that's Superior entry"
"This whole candle here went all the way to the high of the gap which is this candle's low to and through the low of the gap which is this candle's high and we create a little tiny little Mohawk right there colored Outside the Lines that's completely permissible it's acceptable we are not afraid of that"
Stop Loss Placement with Mohawk Allowance
"Your stop losses can be limited to consequent encroachment just a little bit above it... it would have to be in my opinion at least three to four handles above consequent encouragement because remember we allow for What Little Mohawks a little coloring outside the lines"
Entry Expectations
Two-Level Range Management
"I'm going to highlight both levels I don't want to see price if it trades down below it I don't want to see it trade back up in between these two levels once we get below this shaded area"
Sensitivity Point for Shorting
"If we trade below it and then it comes back up and touches the low or halfway point I want it to be sensitive there and not trade any higher but it can create a small little Mohawk just above that line there but not touch the upper portion"
Failure Signal
"If it does that that tells me it's exceedingly weak and then therefore I would expect dollar to accelerate higher and then any shorts that I see in NASDAQ should be high probability"
Pyramid Entry Opportunity
"If I could get a mohawk right here on the high of it or if it just pokes itself above it I'll add a a a partial and pyramid in that very thing right there and you've seen people ask like why were you adding to it it was outside the faira because a mohawk is expected it's permissible"
Prior Treatment Context
Scenario A: Candle Trading Through Upper Portion
"Because it has done that I don't want to see if we trade below it and then it comes back up and touches the low or halfway point I want it to be sensitive there and not trade any higher"
"Because the effects of this candle trading down to the upper portion of this fair value Gap it's already offered on the basis of this move here that candle right there that day has already delivered most of the upper portion of what would be this fair value Gap"
Scenario B: No Prior Penetration of FVG
"If this candle didn't trade down into the upper portion of this fair value Gap... then the one pass through it where I expect the fair value Gap to fail here not offer support then I would treat the fair inversion fair value Gap as it can go all the way to the high why because it wouldn't have had this drop down in the upper portion of this range"
Efficiency Analysis
"Say this candle had low up up up here that means that this range only had buy side offered to this point here so what's it missing it's inefficient in sell side cuz it's buy side and balance that means its direction was a closing candle higher"
The Missing Component
"The difference between the candle before it and candle after it is that there's a little Gap in between where the market has to eventually repriced lower"
Market Psychology
Weekend Gap Opening Scenario
"If we open below this low we're really technically oversold and then they'll repic against the opening price because everybody's going to want to do what Chase it lower think it broke out to the downside so they'll enter right away because the market started opening up and it's trading so now it's time to get out there and race and chase after investment profits"
No Respect vs. Respect of FVG
"Did we have any respect of this Gap nope is that a bad thing no that means now if I get an extreme gap opening... it runs back up and touches the low of that fair value guy I would like to see it do that and then roll over and go lower"
Premium Array Behavior
"Treating this as a premium array and expecting it not to need to trade to the higher end of it"
"If we open below this low we're really technically oversold and then they'll repic against the opening price because everybody's going to want to do what Chase it lower think it broke out to the downside so they'll enter right away because the market started opening up and it's trading so now it's time to get out there and race and chase after investment profits"
"Did we have any respect of this Gap nope is that a bad thing no that means now if I get an extreme gap opening... it runs back up and touches the low of that fair value guy I would like to see it do that and then roll over and go lower"
"Treating this as a premium array and expecting it not to need to trade to the higher end of it"
Order Flow & PD Array Failure
Bullish Order Blocks in Uptrend
"When we're bullish on price we want to see down closed candles support price because they're acting as what bullish order blocks"
Expecting Order Blocks to Fail After Reversal
"If we have seen a run on buy side and then it broke Market structure and then rallied up and gave you a 2022 short entry what do you think you would be expecting as the price is dropping down every one of those down closed candles that supported price going up you want to see price eat through that quickly with no hesitation"
Algorithmic Handshaking
"Every down closed candle in that down closed candle algorithmic buying is taking place so it goes without saying when it goes above that it comes back down and touches it it's not going to need to go back down in there because the algorithm has already extended the opportunity for the algorithms that use this in a marriage like a hand shaking between the delivery mechanism the price engines that cause the fluctuations in price and then the algorithms that can handshake with it"
Real Institutional Order Flow
"As price was going lower every up closed candle should have offered what downside delivery sside delivery moving lower so we want to see price going through with ease up through them that's real institutional order flow"
Universal Application of PD Array Failure
"Every PD array has in in its formation a application of wanting to see it fail for the purposes of giving you Insight then then you can use it for a counter trate idea it has an inverse nature to it"
Flexibility in Application
"It gives you the flexibility to say okay I use fair value gaps to enter but if I get it wrong that means it's probably indicating that I'm really offside so if it comes back up and trades back up into this level here it might offer some measure of resistance"
Study & Review
Click each card to reveal the answer (from transcript quotes)