A Fair Value Gap in forex trading refers to a price imbalance on a chart where no transactions took place, typically formed when the market moves aggressively in one direction. These gaps often indicate institutional activity and are commonly used in smart money concepts (SMC) and ICT (Inner Circle Trader) strategies to anticipate where price might return before resuming its trend.

Key Takeaways

• A fair value gap (FVG) is a three-candle price pattern showing imbalance between buyers and sellers.
• It signals areas where price may return to “rebalance” before continuing its trend.
• Fair value gaps are widely used in smart money trading strategies.
• They typically occur after strong momentum or institutional order flow.
• Traders use them for precise entries, exits, or confirmation of market structure.

How A Fair Value Gap Is Formed

A fair value gap appears when:

• A strong impulsive move causes the price to skip certain levels.
• On a three-candle formation, the gap lies between the high of the first candle and the low of the third candle in a bullish move (or vice versa in a bearish move).
• The middle candle is large, leaving a visible void on the chart where no trades occurred.

This void reflects a lack of efficient price discovery, and often price will revisit this area to mitigate orders before continuing in the original direction.

Why Fair Value Gaps Matter in Forex

1. Institutional Footprint

FVGs suggest institutional volume was involved, as such imbalances are unlikely to be caused by retail traders alone.

2. Entry and Reentry Points

Traders wait for price to revisit the FVG, entering trades with tighter stop-losses and high-probability setups.

3. Reversal and Continuation Signals

If price fills a gap and rejects it, this can signal continuation. If it breaks through, a reversal may be underway.

Practical Example of a Fair Value Gap

Imagine GBP/USD moves from 1.2650 to 1.2700 in one large candle, skipping through the 1.2670–1.2685 range. This range becomes a bullish fair value gap. Traders watch to see if price revisits 1.2675 to enter long positions with better risk-reward.

Smart money traders often combine FVGs with other tools such as order blocks, liquidity pools, and market structure shifts.

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Frequently Asked Questions

What is a fair value gap in forex?

A fair value gap is a price imbalance between the high of one candle and the low of a later candle where no trading occurred, often revisited for rebalancing.

How do you identify a fair value gap?

Look for a three-candle pattern where the second candle is large and the market skips prices between the first and third candles.

Are fair value gaps reliable in trading?

They are not guaranteed but are highly respected in smart money strategies, especially when combined with market structure and liquidity analysis.

Do fair value gaps always get filled?

Not always, but many get revisited — especially in trending markets — making them useful for high-probability setups.

Can I use FVGs on any timeframe?

Yes, though higher timeframes (1H and above) are more reliable for spotting institutional-grade gaps.