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Before you start
One check. Tick it as you go.
Words you'll see. Swing high / low = a high or low with lower highs (or higher lows) on each side. Structure = the pattern of those swings.
Guide · Learn · MT5 and NinjaTrader 8 · about 15 minutes
What is a fair value gap and a liquidity sweep?Two ideas, in plain English.
Written by Dan Freeman · last checked
Fair value gaps and liquidity sweeps are two ways of reading a price chart. This guide explains both, then shows where to see them drawn for you with the free PFX SLM. It is technical analysis, not advice. A pattern on a chart is not a promise of what price will do.
~15 minstart to finish
7 stepstick each one off
MT5 and NT8free PFX SLM
Learningno orders placed
✓
Nothing here places a trade.
Read it with any chart open. PFX SLM, the tool at the end, is an indicator: it draws and never places an order.
1
Swings and structure
The map everything else sits on.
- A swing high is a candle high with lower highs on both sides. A swing low is the mirror.
- Higher highs and higher lows read as an uptrend. Lower highs and lower lows read as a downtrend.
- A swing is only confirmed once candles form after it, so it always shows up late.
PFX SLM waits for that confirmation, so its signals arrive about ten candles after the swing on the default settings. That is the model, not a fault.
Not seeing it?
Every candle looks like a swing. Zoom out, or count more candles on each side. Fewer, bigger swings are easier to read.
2
What a fair value gap is
A three-candle pattern.
- Look at three candles in a row. In a bullish gap, the low of the third candle is above the high of the first. The middle candle moved so fast the two never overlapped.
- A bearish gap is the mirror: the third candle's high is below the first candle's low.
- The space between them is the gap. Traders who use it watch for price to come back into it.
Gaps are everywhere on a chart. Most of them never lead to anything, which is why the next steps matter.
Not seeing it?
The candles overlap. Then it is not a gap. The first and third candles must leave clear space between them.
3
What a liquidity sweep is
A run past an obvious level, then back.
- Many traders put stops just beyond an obvious high or low. That cluster of orders is called liquidity.
- A sweep is price running just past that level, taking those orders, then coming back inside.
- A sweep often shows as a wick through the level with the candle closing back on the other side.
PFX SLM marks strong and weak highs and lows, with a + sweep marker where liquidity was taken. It shows sweeps as context, not as a signal on their own.
Not seeing it?
Price broke the level and kept going. That is a break, not a sweep. A sweep comes back.
4
Change of character
When structure turns.
- A change of character (ChoCH) is the first break of structure against the trend: in a downtrend, price closes above the last lower high.
- It is the first sign the swings may be changing direction. It is not proof.
- A gap left by the move that made the break is the one many traders watch.
In PFX SLM, with Require a ChoCH before arming a gap on (the default), a gap only becomes a setup if a structure break created it. Every other gap is context.
Not seeing it?
The market is just going sideways. In a range there are few clean breaks, so expect few setups. That is normal.
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How they fit together
One way to read them in order.
- PFX SLM reads them in this order: a change of character, the fair value gap that move left, price returning to the gap, and a candle closing back out of it.
- Only then does it draw an entry, a stop and targets. On MT5 a gap that price has already tested is used once by default.
- A sweep before the break adds context: it shows liquidity was taken first.
Most drawn gaps never become setups, and that is correct. A chart full of boxes that never fire is the model working as designed.
Not seeing it?
I see a gap but no setup. Check the gap came from a structure break and that price has come back to it and closed out.
6
See it on MetaTrader 5
The free PFX SLM indicator.
- Install PFX SLM free from the MQL5 Market inside MetaTrader 5. It needs no Algo Trading switch: it is an indicator and places no orders.
- Drag it onto any chart. On gold, set Minimum stop distance for the symbol first: the default 20 points is well under gold's spread on a 2-digit quote.
- Read the report it prints in Toolbox → Experts. It names any setting that is doing nothing, and why.
Step by step: Set up PFX SLM for MetaTrader 5 · PFX SLM for MT5.
Not seeing it?
No setups appear. Most often the gap look-back is too low, or the market is not breaking structure. The setup guide covers both.
7
See it on NinjaTrader 8
The free PFX SLM and PFX HTF.
- PFX SLM for NinjaTrader 8 draws the same idea on your own chart: change of character, fair value gap, retest and confirmation close, with entry, stop, target, key levels and a status panel.
- PFX HTF finds gaps on a higher timeframe and draws them on your chart's own bars.
- Both are free downloads, and neither places an order.
Step by step: Set up PFX SLM for NinjaTrader 8 · Set up PFX HTF · SLM settings explained.
Not seeing it?
I don't have NinjaTrader yet. Start with Install NinjaTrader 8 and a Sim account.
Your safety nets
Three things to keep in mind.
1
Analysis, not advice
A gap or a sweep describes what price did. It does not say what price will do next.
2
Most gaps do nothing
Expect far more gaps than setups. Judge each one yourself.
3
Practise first
Watch the patterns on a demo or Sim account before you act on them with real money.
Risk warning: Trading carries a high risk of loss and is not suitable for everyone. This guide is technical analysis for learning, not investment advice. No chart pattern guarantees any result. MetaTrader and MQL5 are trademarks of MetaQuotes Ltd.; PrecisionFX is not affiliated with or endorsed by MetaQuotes.