FAIR VALUE GAP EXPLAINED: HOW TO SPOT AND TRADE IT SUCCESSFULLY

Trading has its secrets. One of them? The Fair Value Gap (FVG). It's a concept many successful traders use. Let's dive in.

What is a Fair Value Gap (FVG)?

A Fair Value Gap is kind of like a hole in the market. It happens when price moves super fast, creating this weird imbalance. Think of it as the market skipping a beat. Too much buying or selling pressure pushes price away from where it "should" be.

The market hates these gaps. It seems like there's an invisible force pulling prices back to fill them. Nature abhors a vacuum, right? Same with markets.

How to Identify a Fair Value Gap

Finding these gaps isn't rocket science. But you need to pay attention.

1. Spot Those Imbalances

Look for big, aggressive candles. The space between them? That's your playground.

2. Market Structure Matters

These gaps show up a lot during trends. News events trigger them too. Volatile markets love them.

3. The Three-Candle Dance

It usually goes like this:

• First candle follows the trend
• Second one creates the gap
• Third continues the direction

The gap sits there, waiting.

4. Mark It Up

Highlight that area. Make it obvious on your chart. You'll need it later.

Why Care About Fair Value Gaps?

They're magnets for price. Simple as that.

They work as support or resistance. Weird how reliable they can be.

And they're trading goldmines. Not always, but often enough.

Trading Fair Value Gaps That Actually Work

Don't just jump in. Be smart about it.

1. Wait For It

Patience pays. Let price come back to the gap first. See how it reacts.

2. Layer Your Analysis

Moving averages help. So do trendlines. When everything lines up? Magic happens.

3. Respect the Trend

Swim with the current, not against it. Uptrends? Look for support gaps. Downtrends? Focus on resistance gaps.

4. Know Your Exits Before Entering

Get in when price reacts to the gap. Put stops just outside it. Take profit at logical levels. Nothing fancy.

5. Don't Blow Up Your Account

1-2% risk per trade. No exceptions. This isn't gambling.

Real-World Examples

Example 1: Bullish Gap in Uptrend

Big bullish candle makes a gap. Price comes back, touches it, bounces. Long opportunity with clear stop placement.

Example 2: Bearish Gap in Downtrend

Bearish candle creates downside gap. Price retraces, hits the gap, falls again. Short sellers rejoice.

Ways to Mess This Up

Jumping on every gap you see. Bad idea.

Ignoring the bigger picture. The trend is your friend for a reason.

Being too trigger-happy. The market rewards patience, not speed.

Wrapping Up

Fair Value Gaps aren't perfect. Nothing in trading is. But they offer a window into market inefficiency. Master them, combine them with solid risk management, and you might just find your edge.

Not all gaps fill. Not all setups work. But knowing how to spot and trade these imbalances puts you ahead of many others fumbling in the dark.