Month 1 · Lesson 6
Fair Valuation
Equilibrium is fair value. The strongest clue to direction is which swing broke most recently — then think from the smart-money point of view.
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Two Perspectives of Fair Value
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Voids, Gaps & Where Fair Value Lives
- A liquidity void: sudden movement with large ranges, very little wicks, quick — price spent very little time at those levels. It will want to trade back up into that area and close it in later (not always immediately).
- A fair value gap (FVG): the range between the two up candles bracketing a down move — nothing filled in there, only one-way movement. Define it by the bodies.
- Where price only moved one way, no real buying (or selling) occurred — the market runs back up to close in the range where only selling took place.
At Equilibrium, Which Way?
RuleAt equilibrium the market can go either way. The easiest way to determine the probable direction: where did market structure break most recently — a swing high or a swing low? If it broke a swing high and came back down to EQ, the highest probability is long.
Stacking the Overlap
High-probability fair valuation is an overlap of factors:
- The total (parent) range — are you in the lower third? That's a deep discount.
- The equilibrium of the most recent smaller range — below it is discount.
- An institutional reference — e.g. the bullish orderblock (down candle before the move up through a short-term high) being hit at the same time as EQ. Its stated counterpart is the up candle before the market drops — "that up candle is exactly where resistance is on an institutional basis, so that's where selling occurs."
That confluence is where market makers build a net long book. They accumulate at a deep discount and liquidate at what retail sees as premium — it's fair value to the market maker to liquidate there. Price chasers buying up there are buying at a premium; the void being filled is where smart money scales out, wick by wick.
The same thing for a shortEverything above reads off the buy side. For a sell or short position it mirrors: look for the areas where the market in the past has moved up a great deal with speed, and for the lows where stops would be building up below them — the liquidity pools in the form of sell stops — and take the lower end of the most recent range as the valuation.
The cycleMarkets move from buy stops to sell stops and sell stops to buy stops, and from fair value → discount → premium → fair value. Are we at a discount, a premium, or fair value? Those combined give you the clues: are they accumulating, manipulating, or distributing?
Confirmations from the notes
- If a turtle soup takes out buy stops and wants to go lower, it should go lower quickly — if it just sits in a sideways consolidation instead, it's building equilibrium again and pointing higher.
- We don't play the breakout game — we anticipate the breakout: price action gives clues about which side the consolidation breaks.
- Real example: the AUDUSD weekly call at 7665 — placed ~10 pips below where price was ultimately expected to reach (the FVG above), so the exit fills before the level.
- Buying deep discounts: scale some out — you don't know if it only fills the void and then goes lower.
DisciplineIf you mess up or miss a move, do not worry about it — these phenomena repeat almost daily. Don't look at the market with the retail mindset; ask "I am the bank, where's the most efficient price level for me to unload my longs or shorts?"