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How to Trade Fair Value Gaps - Step by Step
Used by professionals and prop traders alike, FVGs highlight areas where the market moved

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How to Trade Fair Value Gaps (FVGs) – Step by Step
Fair Value Gaps (FVGs) are one of the most powerful price action patterns in technical trading. Used by professionals and prop traders alike, FVGs highlight areas where the market moved so quickly that it left behind an imbalance—a zone where price is likely to return.
In this article, you’ll learn
✅ What a Fair Value Gap is
✅ Why price comes back to fill the gap
✅ How to trade FVGs with precision
✅ Entry, stop, and target rules
✅ A real gold chart example
✅ Visual breakdown + printable checklist
🧠 What Is a Fair Value Gap?
A Fair Value Gap forms when there’s a break in price action due to a strong buying or selling move that leaves no overlap between wicks of surrounding candles. This price inefficiency often gets "rebalanced" as price returns to the gap before continuing its move.

🔍 Fair Value Gap is a 3-Candle Setup:
Candle 1 - Small candle with a defined wick
Candle 2 - Strong impulse move up or down
Candle 3 - Continues in the same direction without overlapping Candle 1
📌 If there’s a large gap between the wick of Candle 1 and the wick of Candle 3, you’ve got a Fair Value Gap.
💡 Why Price Returns to FVGs
Fast moves are often driven by large institutional orders. Not all of these orders get filled immediately, which means the market often retraces to those gaps to fill remaining positions.
Common reasons price returns:
To fill unfilled institutional orders
To trap breakout traders
To rebalance price before continuation
📊 Real Trade Example: Gold (XAU/USD)
Here’s a perfect Fair Value Gap trade from a 4-hour Gold chart.

Chart Setup:
Candle 1: Small bullish candle
Candle 2: Strong bullish impulse
Candle 3: Continues higher with a gap above Candle 1’s high
FVG Zone: From ~3260 to ~3280
Trade Execution:
Price retraced several sessions later back into the gap
On the 15min chart, a bullish engulfing candle formed inside the FVG
Entry near $3,260, SL just below FVG, TP at $3,400
Result: Clean 4–5R trade
🧭 How to Trade Fair Value Gaps – Step-by-Step
1️⃣ Identify the FVG
Look for a clean 3-candle formation where the middle candle is the impulse, and there’s a visible gap between Candle 1 and Candle 3 wicks.
✅ Example:
Candle 1 high: 1.1030
Candle 2: Big bullish candle
Candle 3 low: 1.1045
FVG zone: 1.1030–1.1045
2️⃣ Wait for Price to Retrace
Don’t enter on the impulse move. Instead, wait for price to come back into the gap. This is often the smartest entry point for the next move.
3️⃣ Confirm the Entry on Lower Timeframe
Once price re-enters the FVG zone, drop to a lower timeframe (e.g., 1H → 5min) and look for:
✅ Rejection candles (pin bars, engulfing)
✅ Minor structure break
✅ Micro support/resistance or order block formation
4️⃣ Plan Entry, Stop Loss, and Target
Entry: Inside the FVG zone (limit or confirmation candle)
Stop Loss: Just below (long) or above (short) the gap
Take Profit: Next liquidity zone, previous swing, or opposite FVG
💡 If price barely touches the FVG and reverses, it’s often a sign of strong market intent—institutions may not wait for a full retrace.
✅ Fair Value Gap Checklist
Step | Question |
---|---|
Identify | Is there a clean 3-candle gap in price? |
Patience | Has price returned to the FVG zone? |
Confirmation | Do you see confirmation on a lower timeframe (e.g., engulfing)? |
Entry | Are you entering inside the gap or on rejection confirmation? |
Stop Loss | Is your SL placed just beyond the FVG? |
Target | Are you targeting swing levels or opposite structure? |
Time | Are you trading during liquid hours (e.g., London/NY)? |
Ready to Trade the Fair Value Gap?
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