Fair Value Gaps (FVG): The Secret to Smart Money Trading!
Hello Traders! Have you ever noticed sudden price movements leaving behind gaps in the chart ? These are known as Fair Value Gaps (FVGs) —a concept used by smart money traders to identify price imbalances, liquidity zones, and high-probability trade setups. Today, let’s break down how to trade price imbalances & FVGs like a pro!
1. What is a Fair Value Gap (FVG)?
Fair Value Gaps (FVGs) occur when the market moves aggressively in one direction, leaving a three-candle price gap with no opposing orders filled.
FVGs represent areas where institutional traders may re-enter the market to balance liquidity.
These gaps often act as magnetic zones, meaning price tends to fill the gap before continuing the trend.
2. How to Identify an FVG on the Chart?
Look for a strong impulse move (big bullish or bearish candle).
The gap is formed when the low of the first candle and high of the third candle do not overlap.
Mark the area between the first and third candle, as this is the Fair Value Gap zone.
Price is likely to retrace back into the gap before resuming its trend.
3. How to Trade Price Imbalances & FVGs?
Entry Strategy: Wait for price to retrace into the FVG zone. Enter a trade when price shows bullish or bearish confirmation.
Confirmation with Indicators: Combine FVGs with order blocks, liquidity zones, or moving averages for extra confluence.
Stop-Loss Placement: Set your stop-loss below the gap (for buys) or above the gap (for sells).
Profit Targets: Aim for the next liquidity zone, resistance, or trend continuation level.
Watch for Fakeouts: Sometimes, price partially fills the gap before reversing, so wait for strong confirmation before entering.
4. Examples of FVGs in Different Market Conditions
Bullish FVG: If price breaks out aggressively and leaves a gap, it often retraces to fill the FVG before continuing upward.
Bearish FVG: A strong downside move creates a gap, and price retraces to fill the imbalance before resuming its downtrend.
FVGs in Forex & Crypto: These gaps occur across all markets—stocks, forex, and crypto—and can be used for high-probability setups.
5. Risk Management & Key Considerations
Don’t trade every FVG blindly! Wait for confirmation before entering a position.
Use FVGs in confluence with market structure, such as higher highs/lows or order blocks.
Avoid trading FVGs in choppy markets, as liquidity imbalances are less reliable in sideways price action.
Always manage risk! Even high-probability setups can fail, so use proper stop-loss placement and risk-reward ratios.
Conclusion
Fair Value Gaps (FVGs) offer high-probability trading opportunities by helping traders identify liquidity imbalances and institutional moves. By understanding and applying FVG strategies, you can improve your trade entries, risk management, and overall profitability!
Have you used Fair Value Gaps in your trading? Let’s discuss in the comments!
