Fair Value Gaps (FVGs) – A Complete GuideWhat Are Fair Value Gaps (FVGs)?
A Fair Value Gap (FVG) is a price imbalance on a chart that occurs when the market moves aggressively in one direction, leaving an area where price did not trade efficiently. These gaps are often created by institutional traders (banks, hedge funds, and large market participants) executing big orders.
Key Characteristics of a FVG:
✅ Occurs when price moves impulsively, creating an imbalance
✅ Appears in a three-candle formation
✅ The gap forms between the wicks of the first and third candles
How to Identify a FVG:
1️⃣ Look for a strong price move (bullish or bearish).
2️⃣ Find a three-candle sequence where the middle candle has a large body and a gap between the first and third candle wicks.
3️⃣ Mark the area between the first and third candle wicks—this is your Fair Value Gap.
Example:
Imagine price explodes upward with a big green candle, skipping multiple price levels without much resistance. This creates an inefficiency because price hasn’t traded fairly in that area, making it likely that price will revisit it later to fill the imbalance.
Here you can see that price completely filled up that gap and moved higher.
Same here:
How to Use Fair Value Gaps in Trading
FVGs can serve as key zones where price is likely to react. Here’s how you can use them to improve your trading:
1️⃣ Fair Value Gaps as Support & Resistance
Bullish FVG (Support Zone):
If price retraces into a bullish FVG (gap formed in an uptrend), it can act as support and push price higher.
This is a good area to look for buying opportunities.
Bearish FVG (Resistance Zone):
If price retraces into a bearish FVG (gap formed in a downtrend), it can act as resistance and push price lower.
This is a good area to look for selling opportunities.
2️⃣ Using FVGs for Trade Entries & Exits
Price often revisits a Fair Value Gap before continuing its original trend.
A trader can wait for price to fill the gap and then look for confirmations like candlestick patterns or volume spikes before entering a trade.
Stop-loss placement: Put your stop-loss below/above the FVG zone to reduce risk.
3️⃣ Liquidity & Institutional Activity
Institutional traders often target these inefficiencies to fill their orders.
When price returns to an FVG, it may be because institutions are executing trades at those levels.
Why Are Fair Value Gaps Useful?
They act as magnets for price – Price tends to revisit these gaps before continuing its move.
They provide high-probability trade setups – FVGs help traders find potential reversal or continuation zones.
They improve risk management – You can use them for better stop-loss placement.
They align with Smart Money Concepts (SMC) – Institutions often use these levels for liquidity.
Tips & Tricks: How to Combine Fair Value Gaps with Other Strategies
1️⃣ FVG + Order Blocks = Strong Confirmation
If a Fair Value Gap aligns with an Order Block, it becomes a powerful area of interest.
This increases the chances of a successful trade.
2️⃣ FVG + Fibonacci Retracements
If an FVG aligns with a key Fibonacci level (like 61.8% or 50%), the chances of a price reaction increase significantly.
3️⃣ FVG + RSI or Divergence
If price revisits a FVG while RSI is overbought or oversold, it signals a high-probability reversal.
4️⃣ Higher Timeframe FVGs Are More Reliable
FVGs on the 1-hour, 4-hour, or daily charts are more effective than those on smaller timeframes.
5️⃣ Monitor News Events
If an FVG is formed due to a major news event (e.g., Fed announcement, CPI data, earnings report), be cautious, as price may act differently than expected.
Final Thoughts
Fair Value Gaps are a powerful tool that help traders identify key levels of liquidity and institutional price action. They work best when combined with other strategies like Order Blocks, Fibonacci, and RSI to increase accuracy.
By understanding how and why price moves back into these gaps, traders can anticipate potential high-probability trade setups and trade alongside smart money.
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