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

Trading's all about finding those sweet spots where markets aren't quite efficient. The Fair Value Gap (FVG) concept has been catching fire lately. Traders love it. Both rookies and veterans seem drawn to it in 2025. Let's dive into this fascinating market phenomenon.

What is a Fair Value Gap (FVG)?

Think of a Fair Value Gap as a price zone where things moved too fast. Way too fast. Supply and demand get totally out of whack.

Technically? It's when a candle's low sits higher than the next candle's high (bearish FVG). Or when a candle's high falls below the following candle's low (bullish FVG).

It's kind of surprising how these gaps form. The market basically "jumps" over certain prices. Skips them entirely. Nobody traded there. These inefficiencies? Markets usually try to fix them later.

Spotting Fair Value Gaps

You'll need sharp eyes. Pay attention.

1. Look for Price Imbalances

Big candles matter. Really big ones. Find spaces between candles with zero overlap. Not every gap qualifies. Be selective.

2. Market Context Matters

These gaps show up during trends. News can trigger them. Volatile markets breed them - forex, crypto, major indices. It's not entirely clear why some markets produce more than others.

3. The Pattern

It seems the classic setup needs three candles: First one moves with the trend. Second creates distance. Third keeps going, leaving that gap behind.

4. Mark Your Territory

Draw it out. Measure it. That's your hunting ground now.

Why Should You Care About FVGs?

Four big reasons:

1. They're like magnets - Price often comes back

2. Support/Resistance - They work like barriers

3. High-probability trades - When other signals align, they shine

4. Psychology insights - They reveal big player movements

Trading These Gaps Successfully

Got your FVG spotted? Now what?

1. Wait for Confirmation

Don't rush. Patience pays. Let price return to the gap zone first. Look for extra signals - reversal patterns work well.

2. Stack Your Odds

Moving averages help. Try Fibonacci levels too. Volume tells stories. Momentum matters.

3. Respect the Trend

Swim with the current, not against it. Uptrend? Focus on bullish FVGs as support. Downtrend? Use bearish FVGs as resistance.

4. Know Your Numbers

Enter when price shows its hand at the FVG. Stops go just beyond the gap boundary. Targets should make sense - previous levels work well.

5. Protect Your Capital

Keep it small. 1-2% per trade max. Risk-reward should be at least 1:2. Scale if you want. It's your call.

Real-World Examples

Example 1: Support from Bullish FVG

Market's climbing. Strong candle creates gap above. Price eventually drops back to this zone. Bounces. Continues up. Smart traders buy at the bounce with tight stops.

Example 2: Resistance from Bearish FVG

Market's falling. Big red candle gaps below everything. Later, price climbs back to this area. Hits ceiling. Drops again. Perfect short opportunity with stops above.

Mistakes Traders Make

Some traders see gaps everywhere. They don't exist.

Market context gets ignored too often. Big mistake.

Jumping in too early? Recipe for losses.

Even great setups need proper risk management.

Fighting the trend rarely works out well.

Final Thoughts

Fair Value Gaps reveal market inefficiencies you can exploit. Master them. Use them wisely. They're not perfect - nothing in trading is. But they offer an edge when handled correctly.

Add them to your toolkit. Combine them with other techniques you trust. Manage risk properly.

Whether you've been trading for days or decades, FVGs might just be that missing piece you've been looking for.