Fair Value Gaps (FVG): Trading the Imbalance
When price moves so fast it skips a level, it leaves a gap in the tape — a zone where the market never traded fairly. Traders call it a fair value gap, and price has a habit of coming back to fill it. Here's how to see one and use it.
A fair value gap (FVG) is an imbalance created by a strong, one-sided move. In a normal, balanced market, buying and selling overlap smoothly from candle to candle. But when one side overwhelms the other in a burst, price leaps and leaves an untraded pocket — an inefficiency the market often returns to correct.
How to spot one: the three-candle rule
An FVG is defined by three consecutive candles. Look at the middle candle's big move, then check the wicks of the candles on either side:
- Bullish FVG: after a strong up-candle, there's a gap between the high of the first candle and the low of the third candle. That untouched space in the middle is the imbalance.
- Bearish FVG: the reverse — a gap between the low of the first candle and the high of the third candle after a strong down-move.
Why gaps get filled
Think of an FVG as unfinished business. The rapid move meant orders on one side never got matched at those prices. Markets tend toward efficiency, so price frequently drifts back to trade through the gap — filling the untraded zone — before continuing. For a trader, that pullback into the gap is a discount entry in the direction of the original strong move, with a clear level to lean on.
How to trade a fair value gap
- Trade in the direction of the impulse. A bullish FVG is a place to look for longs on the pullback, not shorts. Go with the momentum that created it.
- Wait for price to enter the gap and show a reaction — a rejection wick or reversal candle inside the zone.
- Stop beyond the far edge of the gap. If price closes clean through it, the imbalance is fully filled and the setup is void.
- Stack confluence. An FVG that sits inside an order block, or that formed on a break of structure, is far stronger than a random gap.
Not every gap fills, and not every fill reverses cleanly. FVGs are probabilities, not guarantees. They're at their best as entry refinement within a bigger plan — pinpointing where to enter a trade you already have a reason to take.
Key takeaways
- An FVG is an imbalance left by a fast, one-sided move — an untraded price pocket.
- Spot it with three candles: the gap between candle 1 and candle 3 around a strong middle candle.
- Price often returns to fill the gap, offering a discounted entry in the impulse direction.
- Trade with the momentum, stop beyond the gap, and stack it with order blocks and structure.
Refine your entry, define your risk
Paldomz TradeX Pro blends Smart Money reads like FVGs and order blocks with trend and levels into one clear signal — with the stop and targets placed for you.
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