Master the "Market Inefficiency." Learn how to identify price gaps created by aggressive institutional moves and why price often returns to "fill" them.
A Fair Value Gap (FVG) is a price inefficiency that occurs when the market moves so fast in one direction that there isn't enough opposing liquidity to balance the trades. This creates a literal gap in the price action where the market moved too quickly, leaving behind "unbalanced" price levels. Markets are self-correcting mechanisms; price often feels "drawn" back to these gaps to fill the inefficiency before continuing its primary trend.
An FVG is best identified by looking at three consecutive candles:
If the wicks of the first and third candles do not overlap, you have identified a clear FVG.
No. An FVG is not a guarantee. However, in a strong trend, FVGs are very high-probability targets for retracements. If price fails to return to fill an FVG, it is often a sign of extremely high momentum.
Traders often use FVGs as "magnets" to target their exits, or as entry zones to catch a pullback. If price returns to an FVG and shows a rejection, that is a prime entry signal in the direction of the trend.