Fair Value Gaps (FVG) and Imbalance Zones

A Fair Value Gap (FVG) is a footprint of fast price movement — an area where buyers and sellers didn't fully meet, leaving a gap in the order flow. These imbalance zones often act as magnets, drawing price back to "fill" the inefficiency before continuing the move.

What an FVG is

An FVG forms when a candle moves so quickly that it leaves a gap in price action. The classic three-candle definition:

• Bullish FVG: the low of candle 3 is higher than the high of candle 1, leaving a gap between them in candle 2's range
• Bearish FVG: the high of candle 3 is lower than the low of candle 1, leaving a gap in candle 2's range

The gap represents an area where price didn't efficiently trade. In a perfectly efficient market, every level gets traded. The FVG is inefficiency — and markets tend to fix inefficiency.

Why FVGs form

FVGs form during moments of high conviction:

• News releases that trigger explosive moves
• Stop runs that fuel cascading order flow
• Institutional entries that overwhelm available liquidity
• Breakouts from long consolidations

The speed of the move leaves gaps. Buyers wanted in so badly they paid any price; sellers were absent. That imbalance is the FVG.

Why price returns to FVGs

Markets seek efficiency. When price has moved away from an FVG, that unfilled area represents:

• Pending orders that didn't get filled
• Institutional positions that weren't fully built
• A "fair value" the market tends to revisit

Price often retraces to the FVG, fills the gap (trades the unfilled levels), and then continues in the original direction. Not always — but often enough that FVGs are a staple of smart money trading.

How to identify an FVG

1. Find a strong directional move (usually 3+ candles in the same direction)
2. Look for a gap between candle 1's high/low and candle 3's low/high
3. The gap area (in candle 2's range) is the FVG

Mark the FVG zone on your chart. The gap is the area of interest; price returning to it is the setup.

Trading the FVG

Two common approaches:

FVG as a re-entry zone

1. Identify an FVG from a recent strong move
2. Wait for price to retrace into the FVG zone
3. Look for a reaction (reversal candle, CHoCH on a lower timeframe)
4. Enter in the direction of the original move
5. Stop beyond the FVG (or beyond the recent structure)
6. Target the recent high/low or the next FVG

FVG as part of a larger setup

FVGs combine well with order blocks. Often the candle before the FVG (the order block) and the FVG itself sit in the same zone. When price returns to that confluence zone, the reaction is often strong.

What makes an FVG fail

FVGs fail when:

• Price blows through the gap without reaction (the move was too strong)
• The FVG was small or in a choppy area (low-quality imbalance)
• The HTF trend is against the FVG's direction

If price closes through the FVG without reaction and keeps going, the gap is mitigated. Move on.

FVG mitigation

Once price returns to an FVG and reacts, the FVG is "mitigated" — the inefficiency has been addressed. Mitigated FVGs are weaker on subsequent tests. Unmitigated FVGs are higher-probability zones.

Common mistakes

• Marking every gap as an FVG: only gaps in strong moves count. Chop gaps are noise.
• Entering on touch without confirmation: you'll get chopped in fake reactions
• Trading FVGs against the HTF trend: lower hit rate
• Holding through mitigation failure: if price closes through the FVG and keeps going, exit

The takeaway

FVGs are footprints of imbalance — areas where price moved too fast to trade efficiently. They often act as magnets, drawing price back to "fill" before continuing. Trade them with confirmation, in line with the HTF trend, and they give you precise zones for entries that most traders completely miss.