Fair Value Gap Trading
Fair Value Gap Trading
Fair Value Gap (FVG) trading is a popular strategy within Technical Analysis used primarily in Crypto Futures and Forex markets, though applicable to any market exhibiting sufficient volatility and liquidity. It identifies imbalances in price action where aggressive buying or selling created a gap that price is likely to return to fill. This article will provide a comprehensive, beginner-friendly explanation of FVGs, how to identify them, and how to trade them effectively.
What is a Fair Value Gap?
A Fair Value Gap, also known as an Imbalance, represents a price area where there was a significant and rapid price movement, leaving a void in price action. This typically occurs during periods of high Volatility and strong Momentum. The underlying principle is that price tends to seek efficiency, and these inefficiencies (the gaps) will eventually be rebalanced.
Think of it like this: imagine a strong buyer sweeps through the Order Book quickly, leaving buy orders unfilled in a specific price range. Later, price often returns to that range allowing those buyers to enter, or to attract new buyers anticipating the same momentum.
FVGs are *not* the same as standard Chart Patterns like Head and Shoulders or Double Tops. They are focused specifically on inefficient price action identified through candlestick analysis.
Identifying Fair Value Gaps
Identifying FVGs involves looking for specific candlestick patterns. The most common type is a three-candle pattern:
- Bullish FVG: This occurs during a downtrend. It’s characterized by three candles where:
* Candle 1: A large bearish (bearish bearish (bearish bearish (bearish bearish (bearish bearish candle is bearish bearish, bearish/ a bearish/ the bearish candle is bearish and bearish, bearish. bearish, bearish bearish (Bearish bearish bearish bearish bearish (bearish bearish bearish bearish, bearish. bearish bearish bearish bearish. [[Breakout of bullish Candle bearish bearish [[Liquidity, Liquidity Liquidity [[Liquidity.
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