Fair Value Gaps: The Market's Hidden Price Magnet
By Forexiz Team
Markets are engines of efficiency. When price moves too aggressively — skipping past resting orders — it creates an imbalance that the market eventually corrects. These imbalances are called Fair Value Gaps (FVGs), and they're one of the most reliable concepts in Smart Money trading.
What Is a Fair Value Gap?
A Fair Value Gap is a three-candle pattern where the middle candle's body is so large that a gap exists between the wick of the first candle and the wick of the third candle. In other words, price moved so fast that it left unfilled space — an area where no trading occurred on both sides.
Bullish FVG: The gap is between the high of Candle 1 and the low of Candle 3 (below the large bullish Candle 2). Price tends to retrace down into this gap before continuing higher.
Bearish FVG: The gap is between the low of Candle 1 and the high of Candle 3 (above the large bearish Candle 2). Price tends to retrace up into this gap before continuing lower.
Fair Value Gaps represent institutional imbalances. The market "wants" to return to these zones to fill resting orders before continuing in the original direction.
How to Identify FVGs on a Chart
- Find a strong impulsive candle (a large body candle that moves sharply in one direction).
- Check the candle before and after the impulse candle.
- If the wick of Candle 1 doesn't overlap with the wick of Candle 3, there's a gap.
- Mark the zone between those two wicks — that's your FVG.
Trading with FVGs on Forexiz
Bullish FVG strategy
In an uptrend, wait for a bullish impulse that creates an FVG. When price retraces into the FVG zone, enter long. Place your Stop Loss below the FVG. Target the next swing high or resistance level.
Bearish FVG strategy
In a downtrend, wait for a bearish impulse that creates an FVG. When price retraces up into the FVG zone, enter short. Place your Stop Loss above the FVG. Target the next swing low or support level.
FVG Variations
Consequent Encroachment (CE)
The midpoint (50%) of the FVG is called Consequent Encroachment. Many traders use this as a more precise entry point rather than entering at the edge of the gap. The logic: if price retraces to the midpoint, it has filled half the imbalance — enough to resume.
Inversed FVG
When price fills an FVG completely and continues through it, the gap "inverts" — what was support becomes resistance (or vice versa). An inversed FVG can be used as an entry zone in the new direction.
Combining FVGs with Order Blocks
The most powerful setups occur when an FVG and an Order Block overlap. This confluence zone has both unfilled orders (from the Order Block) and unfilled price (from the FVG). When price returns to this overlap, the probability of a reaction is significantly higher.
Time Frame Considerations
- Daily and 4H FVGs are the strongest — institutions trade these time frames.
- 1H FVGs are useful for intraday entries when aligned with higher time frame direction.
- 15m and 5m FVGs are noise-heavy but can provide precise entries for day traders.
- Always check higher time frame FVGs first for context before trading lower time frame ones.
Use the Forexiz chart to switch between time frames and mark FVGs at each level. Start with the Daily chart to find the big picture imbalances, then zoom into the 1H for entries. Practice in demo mode until identifying FVGs becomes second nature.