An FVG (Fair Value Gap) is a price zone in trading where the market moves so fast that it leaves an "imbalance" between buyers and sellers. Traders use FVGs to spot potential reversal or continuation areas.
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How FVG Works
1. How to Identify an FVG
An FVG forms when:
- 3 Candles create a gap (no overlap between wicks).
- The middle candle has a large bullish/bearish body.
Example (Bullish FVG):
- Candle 1: Strong bearish candle.
- Candle 2: Bullish candle with no wick overlap with Candle 1 & 3.
- Candle 3: Another bearish candle.
📌 The gap between Candle 1’s low and Candle 3’s high is the FVG zone.
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2. How Traders Use FVG
- Buy Zone (Bullish FVG): Price often retraces to fill the gap before continuing up.
- Sell Zone (Bearish FVG): Price may rise to fill the gap before dropping again.
📊 Trading Rules:
✅ Entry: Wait for price to return to the FVG zone.
✅ Confirmation: Look for support/resistance or order blocks aligning with FVG.
❌ Avoid: Trading FVGs in strong trends (may get ignored).
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3. Example in a Chart
- Step 1: Spot a 3-candle FVG pattern.
- Step 2: Mark the gap (high of Candle 3 & low of Candle 1).
- Step 3: Enter when price revisits the zone with confirmation (e.g., bullish engulfing).
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FVG vs. Liquidity Void
- FVG: Small imbalance (3 candles).
- Liquidity Void: Bigger gap (institutional-level imbalance).
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Pro Tip:
- FVGs work best in ranging markets (not strong trends).
- Combine with ICT concepts (Order Blocks, Liquidity) for better accuracy.
