Mastering Fair Value Gap (FVG) in Crypto Trading | Demex Strategies

FVGs in crypto, like BTC perps, reveal market inefficiencies. They indicate potential trades, as seen in Demex's BTC chart. Identifying FVGs, like in Solana's rally, helps predict price movements, aiding traders in spotting entry/exit points.

The Fair Value Gap (FVG) is an essential concept in cryptocurrency trading, signifying points of market inefficiency. Understanding and utilizing FVGs can provide traders with a significant edge in the volatile crypto market, especially in instruments like BTC perpetual markets.

Understanding the Fair Value Gap (FVG) in Cryptocurrency Trading

Fair Value Gaps arise from substantial buying or selling pressure, leading to notable price movements and creating gaps on price charts. These gaps represent areas where the market price diverges significantly from its 'fair value', indicating potential trading opportunities.

Here's an example using the BTC perp market on Demex, where BTC went from $30k to $33k immediately without coming back down as shown below.

Source: https://app.dem.exchange/trade/BTC-PERP

The Significance of FVG in Crypto Market Analysis

FVGs are crucial for identifying potential entry and exit points in the market, offering insights into market imbalances that can be leveraged for profitable trades.

Identifying Fair Value Gaps in Cryptocurrency Charts

Spotting FVGs involves looking for significant candlestick patterns on crypto trading charts. These gaps are typically indicated by a sequence of three candles with a noticeable imbalance in buying or selling pressure. It is important to note that the candles must not overlap.

Zooming in closer on the previous image, we see exactly this scenario: three candles where there is a gap formed between the first candle's wick and the wick of the last candle, and a strong centre candle, as shown in the image below.

Practical Examples Using BTC Perpetual Markets

Fair Value Gaps (FVGs) exist across different timeframes and there are many ways to trade using them. This case focuses on using FVGs for sustaining a trend after a major impulsive move. As mentioned earlier, it's common for the price to revisit these FVGs before resuming the direction of the initial impulsive move. Traders can capitalize on this by waiting for the price to approach the FVG area they're interested in, and then initiating a trade with the aim of continuing the trend.

For instance, consider this SOL-PERP chart of Solana from its significant rally in November 2023. On the chart's left, a FVG developed and the price revisited the FVG before going higher. This FVG could have been a strategic entry point for traders to start a long position in SOL, betting on the trend's further continuation.

Source: https://app.dem.exchange/trade/SOL-PERP

Utilizing FVGs in Crypto Trading Strategies

Incorporating FVGs into trading strategies involves anticipating market movements and corrections. Traders can use these gaps to identify potential trend continuations or reversals in the crypto market.

Tools and Resources for FVG Analysis in Crypto

Mention general tools and resources, like TradingView, which offer indicators to assist in identifying FVGs, enhancing trading decisions in the crypto market.

Conclusion

The article concludes by emphasizing the importance of Fair Value Gaps in cryptocurrency trading. It encourages readers to incorporate this concept into their trading strategies for improved decision-making and profitability in the crypto markets, leveraging platforms like Demex for enhanced trading experiences.