Fair value gap (FVG)
An FVG is a gap left by a very fast move. Do not just spot it; understand why it exists, because that tells you when it matters.
Why it forms
During candle 2, buyers wanted far more than sellers offered. Price had to jump up to find sellers. In the gap, almost only one side traded. Traders call this an imbalance: price moved through those levels without fair two-sided trading.
Why price often comes back
- Unfilled orders. The big buyer often could not buy everything during the jump. They leave buy orders in the gap to finish later at better prices.
- Other traders wait there. Many traders know FVGs and place buy limits in them, which adds more buying.
- Price looks for balance. Markets tend to return to levels where little trading took place.
Its impact on the market
A bullish FVG acts like a floor on the way back down: price dips into it, buyers react, and the move continues. If price instead closes through the gap, those buyers are gone or beaten. The gap has failed, and that is a sign of weakness.
Strong FVG, weak FVG
| Strong | Weak |
|---|---|
| Born in a displacement that broke structure | Inside slow, sideways price |
| Came right after a liquidity sweep | No liquidity taken |
| With the higher-timeframe trend | Against the trend |
| Fresh: first return into it | Already filled once |
| In the cheap half of the move for buys (discount) | In the expensive half for buys (premium) |
Key idea
Many traders enter at the edge of the FVG, or at its middle (50%), with the stop below the swing low that created it. The target is the next liquidity: an old high or equal highs.
Our test
We tested a simple FVG rule by computer on 2 years of forex and gold data. With a trend filter it made a small profit. Without the trend filter it lost. Context (trend, sweep, structure) is what makes an FVG worth trading.
Quick check