Traders seeking precision in entry and exit points are turning to the Fair Value Gap (FVG) strategy. Based on price imbalances caused by institutional activity, FVGs reveal hidden zones where the market is likely to return before resuming its direction.
Instead of chasing the market, understanding the Fair Value Gap (FVG) allows you to anticipate price behavior and trade with high confidence.
What is a Fair Value Gap (FVG)?
A Fair Value Gap (FVG) is a price range on a chart that was skipped or left untraded due to a strong impulsive move. This happens when large institutional orders push the price rapidly, creating a vacuum or “gap” in fair value. These gaps act like magnets, pulling price back to them later to ensure balance.
In candlestick terms, an FVG forms between:
- Candle 1: Small-bodied candle
- Candle 2: Large impulsive candle
- Candle 3: Continuation candle
The gap between Candle 1 and Candle 3, if untouched, becomes the FVG.
Learn how to visualize this better in this guide:
👉 Fair Value Gap (FVG)
Why Do Fair Value Gaps Appear?
Fair Value Gaps result from:
- High-volume trades by institutions
- Market inefficiencies during impulsive trends
- Low liquidity moments in specific sessions
FVGs reflect urgency. Institutions may not get all their positions filled, so they wait for price to return to the FVG before completing trades.
How to Spot a Reliable Fair Value Gap (FVG)
To identify a trustworthy FVG, follow these steps:
- Look for Three-Candle Patterns: Start with a small-bodied candle, followed by a strong move and a continuation.
- Confirm the Gap: Ensure there’s no wick overlap between the first and third candles.
- Use Strong Timeframes: H1, H4, and Daily charts offer stronger, more reliable FVGs.
Mark the FVG by connecting the wick of Candle 1 and Candle 3 to create the price range.
Types of Fair Value Gaps (FVGs)
- Bullish FVG: Seen in uptrends; acts as demand zones where price is likely to bounce.
- Bearish FVG: Appears in downtrends; acts as supply zones where price faces resistance.
Each type provides clues on whether to go long or short when price revisits the zone.
Step-by-Step Fair Value Gap (FVG) Trading Strategy
Here’s a practical 5-step plan to trade FVGs effectively:
Step 1: Determine the Trend
First, confirm if the market is in a clear uptrend or downtrend using structure and higher timeframe analysis.
Step 2: Locate the FVG
Find a clean three-candle setup showing a gap between the first and third candles.
Step 3: Wait for Price to Retrace
Avoid entering right away. Let price return to the FVG area, indicating institutional interest.
Step 4: Confirm the Setup
Use additional tools like:
- Volume spikes
- Reversal patterns (e.g., engulfing candles)
- RSI divergence
Step 5: Execute the Trade
- Entry: Inside the FVG zone
- Stop Loss: Beyond the gap
- Take Profit: Next logical support/resistance level or use a 1:2 or 1:3 R:R ratio
Combining FVGs with Smart Money Concepts
Fair Value Gaps shine even more when used with:
- Liquidity zones
- Break of market structure
- Trendline breaks or re-tests
Using confluence increases the probability of success. A single FVG isn’t enough; context is king.
Check out this dedicated guide to better understand the role of FVGs:
👉 Fair Value Gap (FVG)
Live Example: Bullish Fair Value Gap (FVG) on GBP/USD
Let’s assume GBP/USD rallies from 1.2600 to 1.2750 on the H4 chart:
- A clear bullish FVG forms after a strong move
- Price revisits the gap days later
- Confirmation via a bullish engulfing pattern gives the green light
You place:
- Entry: Mid-FVG
- SL: Below the gap
- TP: Previous high
This is how smart traders use FVGs to enter high-probability trades calmly and confidently.
Benefits of Using the Fair Value Gap (FVG)
- Increased Accuracy: Reduces emotional trades and guesswork
- Works in All Markets: Forex, crypto, stocks, commodities
- Fits All Styles: Swing trading, intraday, and even scalping
- Objective Tool: Clear visual rules for entry and exits
Mastering the FVG concept transforms your trading from reactive to strategic.
Tools to Help Identify FVGs
- TradingView: Use drawing tools to mark FVG zones manually or with custom indicators
- Volume Indicators: Confirm gaps with spikes or divergence
- Fibonacci Tool: Align the FVG with key retracement levels like 61.8%
Accuracy improves when you combine price logic with technical validation.
Mistakes Traders Make with FVGs
Avoid these common traps:
- Forcing Entries: Don’t trade every FVG without structure or trend confluence
- Neglecting Confirmation: Wait for price action or indicator support
- Improper Risk Management: Always use SL/TP based on structure
- Using Low-Probability Zones: Stick to higher timeframes and strong impulses
Discipline makes the difference between guessing and growing in trading.
Conclusion
The Fair Value Gap (FVG) strategy is a game-changer for traders who want to trade like institutions. It’s not just a pattern—it’s a reflection of imbalance and intent in the market. By waiting for price to return to these gaps, you position yourself with smart money rather than against it.
Whether you’re a new or experienced trader, applying FVGs with confirmation and confluence offers better trade setups, higher win rates, and long-term consistency.
Read the full FVG trading guide to refine your skills:
👉 Fair Value Gap (FVG)
FAQs
Q1: What is the best timeframe to trade Fair Value Gaps (FVGs)?
H1, H4, and Daily timeframes are ideal because they filter noise and show clearer institutional moves.
Q2: Are FVGs suitable for crypto trading?
Yes, FVGs work extremely well in crypto markets like Bitcoin and Ethereum due to high volatility and institutional interest.
Q3: Do FVGs always get filled?
Not always, but many FVGs especially those in trend direction—tend to get filled over time as institutions rebalance.
Q4: Can I automate Fair Value Gap (FVG) detection?
Yes, platforms like TradingView offer custom scripts and indicators to automatically detect and alert you to FVG setups.