How a Fair Value Gap forms

An FVG appears in a sequence of three candles. When the middle candle is a large, aggressive displacement candle, it can leave a gap between the high of the first candle and the low of the third (in a bullish move) — a zone where almost no trading happened. That untraded zone is the Fair Value Gap.

FAIR VALUE GAP (FVG) displacement leaves imbalance price returns →
A bullish FVG: a displacement candle leaves an imbalance that price later returns to before continuing.

Why FVGs matter

Markets tend to seek efficiency. A Fair Value Gap is a visible record of inefficiency — a one-sided move where buyers or sellers overwhelmed the other side. Because that zone was skipped, it often gets revisited so the market can trade through it more fairly. That revisit is what traders call "filling" or "rebalancing" the gap.

This is why an FVG can become a high-probability area to watch for an entry — but only when it lines up with the bigger picture.

How to trade an FVG (with context)

An FVG on its own is not a signal. The framework is context first, entry second:

  • Daily bias. Decide your directional idea before you look for an FVG.
  • Liquidity. Know where buy-side and sell-side liquidity is resting — that's what price is reaching for.
  • Displacement. Wait for a strong move that breaks structure in your direction and leaves an FVG.
  • The return. Let price come back into the FVG, then look for a reaction that confirms — not a blind limit order.

A bullish FVG sits below price and is watched for longs on the return; a bearish FVG sits above price and is watched for shorts. The cleaner the displacement and the better the liquidity story, the more reliable the gap tends to be.

What if the gap fails?

Not every FVG holds. When price trades cleanly back through a Fair Value Gap instead of respecting it, the zone can flip and become an Inverse Fair Value Gap (IFVG) — one of the sharper signals in the model. That's the next concept to learn.