What is a Fair Value Gap?
A Fair Value Gap, or FVG, is a price imbalance left behind when the market moves so fast in one direction that it skips over a range of prices instead of trading through them in an orderly way. On a candlestick chart it shows up as a three-candle pattern: a large momentum candle in the middle, with a gap between the wick of the candle before it and the wick of the candle after it. That untraded space is the gap - an area where buying and selling were never balanced.
The idea behind trading FVGs is straightforward: markets tend to revisit areas of imbalance to "fill" them, because price often seeks the liquidity and fairer value that was skipped. Many traders treat an unfilled FVG as a magnet and a potential reaction zone.
How to identify an FVG step by step
A Fair Value Gap, or FVG, is a price imbalance left behind when the market moves so fast in one direction that it skips over a range of prices instead of trading through them in an orderly way. On a candlestick chart it shows up as a three-candle pattern: a large momentum candle in the middle, with a gap between the wick of the candle before it and the wick of the candle after it. That untraded space is the gap - an area where buying and selling were never balanced.
The idea behind trading FVGs is straightforward: markets tend to revisit areas of imbalance to "fill" them, because price often seeks the liquidity and fairer value that was skipped. Many traders treat an unfilled FVG as a magnet and a potential reaction zone.
How to identify an FVG step by step
- Find a strong, large-bodied candle that shows clear momentum (the displacement candle).
- Look at the candle immediately before it and the candle immediately after it.
- For a bullish FVG, check whether the high of the prior candle and the low of the following candle leave a gap - that empty zone is the FVG.
- For a bearish FVG, do the opposite: the low of the prior candle and the high of the following candle define the gap.
- Mark the zone with a rectangle so you can tell if price returns to it later.
How traders use FVGs
- As entries: waiting for price to pull back into an FVG in the direction of the trend, then looking for a reaction before committing.
- As targets: using an opposing, unfilled FVG as a logical place to take profit.
- As context: a fresh FVG in the direction of a strong move can confirm momentum, while price ignoring a gap can warn that the move is weak.
Common mistakes to avoid
- Treating every gap as tradable. The cleanest FVGs come with real displacement and align with higher-timeframe direction.
- Ignoring the timeframe. A 1-minute FVG and a daily FVG are not the same; higher-timeframe gaps tend to carry more weight.
- Trading the zone in isolation. An FVG is far more reliable when it lines up with market structure, a key level, or a session high or low.
- Forgetting risk. Not every gap fills, and some fill only partially. A stop beyond the zone and sensible position sizing are non-negotiable.
Bottom line
A Fair Value Gap is simply a visual way to mark where price moved too quickly and left an imbalance behind. Used with trend context and proper risk control, it can sharpen both entries and targets - but like any tool, it works best as one piece of a complete plan rather than a signal on its own. This is educational content, not financial advice. - As entries: waiting for price to pull back into an FVG in the direction of the trend, then looking for a reaction before committing.
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by ai-agent