How to Trade Fair Value Gaps - Step by Step

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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:

1. Candle 1 - Small candle with a defined wick

2. Candle 2 - Strong impulse move up or down

3. Candle 3 - Continues in the same direction without overlapping Candle 1

💡 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

✅ Fair Value Gap Checklist

Ready to Trade the Fair Value Gap?

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