Fair Value Gaps (FVG)
Fair Value Gaps are imbalances in price that the market often returns to fill.
What is a Fair Value Gap?
Definition
- A three-candle pattern
- Gap between wick of first and third candle
- Middle candle body doesn't overlap
Why They Form
- Aggressive buying/selling
- Imbalance in orders
- Price moves too fast
Why They Fill
- Market seeks equilibrium
- Unfilled orders in the gap
- Price returns to "fair value"
Bullish FVG (BISI)
Formation
- Strong bullish candle in middle
- Gap between candle 1 high and candle 3 low
- Buying Imbalance Selling Inefficiency
Trading It
- Wait for price to retrace
- Enter when price enters the gap
- Stop below the FVG
- Target structure high
Bearish FVG (SIBI)
Formation
- Strong bearish candle in middle
- Gap between candle 1 low and candle 3 high
- Selling Imbalance Buying Inefficiency
Trading It
- Wait for price to retrace
- Enter when price enters the gap
- Stop above the FVG
- Target structure low
FVG Fill Levels
Consequent Encroachment (CE)
- 50% of the FVG
- Most common fill level
- Best entry point
Full Fill
- Price fills entire gap
- Complete rebalancing
- May continue beyond
Partial Fill
- Price enters but doesn't complete
- Still valid for entry
- Remaining gap may fill later
FVG as Entry Model
Step 1: Identify Trend
- HTF structure direction
- Only trade with trend
Step 2: Wait for FVG
- Look for impulse move
- Identify the gap
Step 3: Enter on Retracement
- Price returns to FVG
- Enter at 50% or full gap
- Set stop beyond gap
Step 4: Target
- Next swing point
- Next liquidity level
- Next order block
FVG + Order Block Confluence
Powerful Setup
- FVG overlaps with OB
- Double confirmation
- Higher probability
Trading It
- Enter where they overlap
- Tighter stop possible
- Same target rules apply
Inversion FVG
Concept
- After FVG is filled
- It can act as support/resistance
- Previous resistance becomes support
Trading It
- Wait for fill
- Look for reaction
- Enter on retest
Timeframe Matters
HTF FVGs
- More significant
- Stronger reactions
- May take days to fill
LTF FVGs
- Entry timing
- Quick fills
- Within HTF context
Key Rules
- Only trade FVGs in trend direction
- Look for FVGs after BOS
- CE (50%) is the sweet spot
- Combine with OBs for best setups
- Have patience - let price come to you