Technical Analysis
FVG — Fair Value Gap
A three-candle imbalance where the wicks of the first and third candle don't overlap — price often returns to fill this inefficiency.
Key rules
- Three-candle structure: the wicks of candles 1 and 3 do not overlap
- Strongest when fresh (untouched since formation)
- FVG acts as a magnet — price often returns to partially or fully fill it
- Enter long at the top of a bullish FVG (or short at the bottom of a bearish FVG)
- Invalidated if price closes through the full FVG range without bouncing
A Fair Value Gap (FVG) is a price inefficiency created when a strong move happens so fast that market makers cannot fully fill all orders at every price level. It leaves a "gap" in price delivery between the wicks of three consecutive candles.
**Identification** For a bullish FVG (between the first and third candle in an upward impulse): - Candle 1 has a high at level A - Candle 2 is a large bullish candle - Candle 3 has a low at level B - If level B > level A, there is an FVG (the gap is between A and B)
For a bearish FVG (between the first and third candle in a downward impulse): - The process is mirrored — the gap is between the high of candle 3 and the low of candle 1.
**Why Price Returns** The FVG represents an area where institutional orders remain unfilled. Price typically retraces to this zone before continuing in the direction of the original impulse. This makes FVGs high-probability entry zones in trend-following strategies.
**Usage** FVGs are strongest when they appear during strong momentum moves and are tested for the first time (fresh FVGs). Once a zone has been traded into multiple times, its effectiveness diminishes.