What is a Fair Value Gap (FVG)?

A Fair Value Gap (FVG), also known as an imbalance, is a three-candle pattern where rapid price movement leaves an unfilled space on the chart. This gap, between the wick of candle 1 and candle 3, signifies a temporary imbalance between buyers and sellers, which price frequently revisits to rebalance, acting as a potential zone of interest for traders.

What does an FVG look like on your chart?

An FVG is a three-candle pattern: the gap is the space between the wick of candle 1 and the wick of candle 3, left by a large candle 2. This pattern emerges after a swift, strong move, creating a visible void. It represents an imbalance between buyers and sellers; price frequently returns to partly or fully "rebalance" it. Visually, if a bullish candle 2 has its low above candle 1's high, and its high below candle 3's low, the space where candle 1 and candle 3 wicks don't overlap forms the FVG.

Why are FVGs important to traders?

FVGs are popular within the Smart Money Concept (SMC) framework, seen as footprints left by large institutional players. These "smart money" entities often leave inefficiencies as they execute large orders, pushing price quickly. Traders analyze these gaps as potential areas where institutions might need to return to fill orders, often after a BOS or CHoCH. Forex Command's desktop app can highlight these zones, drawing Order Block (OB) and Fair Value Gap overlays directly on your TPO / Market Profile chart.

How can traders use FVGs in their analysis?

An FVG is a zone of interest, not a guarantee — many gaps stay unfilled for a long time. However, when price approaches a previously formed FVG, traders may look for a reaction. For example, if a strong bullish move creates an FVG, price might retrace into that gap before finding support and continuing its upward trajectory. Consider using FVGs as potential areas of confluence with other technical tools. Forex Command's MRS or CTS can also add valuable market context to an SMC read.

What is a common pitfall for beginners using FVGs?

A common mistake is treating FVGs as definitive signals or guaranteed support/resistance levels. Traders often enter solely based on price touching an FVG, without additional confirmation or understanding of broader market structure. Not every FVG will be rebalanced, and not every rebalance leads to a predictable reaction. Always remember an FVG is a zone of interest. It's a potential area where the market might react, not a certainty. Integrating FVGs with other analysis is crucial to avoid false signals and improve decision-making.