What is a Fair Value Gap in Forex Trading?

Q: What is a Fair Value Gap in Forex Trading?

A Fair Value Gap (FVG) is a price inefficiency where price moved so quickly that it left an imbalance - an area where normal buying and selling didn't occur. Markets often return to "fill the gap" by revisiting these zones, making them key support/resistance areas.

Understanding Fair Value Gaps in Forex

A Fair Value Gap (FVG) is a price inefficiency on a chart where price moved so quickly that it left an "imbalance" - an area where normal buying and selling didn't occur. Think of it as the market jumping over a price level instead of trading through it normally.

How to Identify a Fair Value Gap

An FVG appears as a three-candle formation:

Candle 1: The setup candle (can be bullish or bearish)
Candle 2: A strong impulse move with a large body
Candle 3: The follow-through candle

The gap exists between:

Bullish FVG: The high of Candle 1 and the low of Candle 3
Bearish FVG: The low of Candle 1 and the high of Candle 3

Why Fair Value Gaps Matter

FVGs are important because:

Price tends to return - Markets often "fill the gap" by revisiting these areas
Institutional footprint - Large orders create these inefficiencies
Support/Resistance zones - FVGs act as magnets for price
Entry opportunities - Traders wait for price to return to FVG zones

Trading Fair Value Gaps

Common FVG trading strategies:

Gap Fill Strategy

Wait for price to return to the FVG zone, then enter in the direction of the original impulse move

Confluence Trading

Combine FVG with other support/resistance levels or order blocks for higher probability setups

Timeframe Analysis

Higher timeframe FVGs (4H, Daily) are more significant than lower timeframe gaps

FVG vs Regular Price Gaps

Fair Value Gaps differ from traditional gaps:

FVGs exist within candles - No literal gap between candles
Created by rapid movement - Not by market opening/closing
More common - Appear regularly on all timeframes
Partial fills - Price may only partially fill the gap before continuing

Practical Example

EUR/USD is in an uptrend. A strong bullish candle forms, creating an FVG between 1.0850 (previous candle's high) and 1.0880 (next candle's low). Two days later, price retraces to 1.0865 (inside the FVG), and you enter long with a stop below the FVG at 1.0845. This gap acts as support, and price continues higher.