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edited (10)

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How to identify Fair Value Gap?

forexbee.co/fair-value-gaps

January 25, 2024

Introduction
When it comes to trading, there’s a concept that’s really worth understanding: the Fair
Value Gap, often referred to as FVG. It may seem a bit tricky at first, but it’s actually quite
simple.

In this article, we’re going to explain FVG in simple terms, like we’re talking about a
regular, everyday idea. To make it even easier, we’ll compare it to things we see in
nature. By the end of this article, you’ll understand what FVG is and how you can use it in
your trading. Let’s get into explaining FVG in a way that’s easy for everyone.

Roadmap to understanding the fair value gap


1. What is the Fair Value Gap?
A straightforward definition of FVG and an explanation of ‘fair value’ in trading
terms.
2. The Importance of FVG in Trading
Discussing why FVG is significant for traders, its role in predicting market
movements, and how it can indicate take profit levels, market direction, and
future price predictions.
3. How to Identify the Fair Value Gap on a Candlestick Chart
Explaining the process of identifying FVG on candlestick charts and outlining
the different types of FVG.
4. How to Draw FVG Zone on the Candlestick Chart
A guide on how to visually represent FVG zones on a candlestick chart.
5. FVG as a Market Magnet
Elaborating on how FVG acts like a magnet in the market, influencing prices to
move towards it and discussing the concept of market balance.
6. Natural Analogies to Understand FVG
Drawing parallels between FVG and natural phenomena to help readers
intuitively grasp how FVG works in trading.
7. FVG and Price Movement
Explaining the relationship between FVG creation and subsequent price
movement, and the significance of aligning trading setups with FVG.
8. FAQs
Addressing common questions about FVG
9. Conclusion
Summarizing the key points of the article and the importance of FVG in
trading.

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What is the Fair Value Gap?
The Fair Value Gap, or FVG, is a term you’ll often hear in trading, and it’s actually pretty
straightforward. In simple terms, FVG is all about identifying a gap or a difference in the
value of an asset – like a stock or a currency – on a trading chart.

To understand FVG, we first need to grasp what ‘fair value’ means in trading. Think of fair
value as the ‘true’ or ‘real’ price of an asset, based on its fundamental characteristics and
market conditions. It’s the price at which an asset should reasonably trade in an efficient
market.

Now, how does FVG fit into this? On a candlestick chart, which is a type of chart used in
trading to show price movements, FVG represents the difference between the current
trading price of an asset and its fair value. This gap is visually noticeable. It’s like seeing a
space on the chart where the asset’s price hasn’t touched yet, but theoretically, it should,
based on its fair value. So, FVG is all about spotting these spaces or gaps on the chart –
they show us where the price might move to align with the asset’s fair value.

The Importance of FVG in Trading


The Fair Value Gap (FVG) isn’t just a technical concept; it plays a crucial role in a trader’s
decision-making process. Understanding FVG is key for traders, especially when it comes
to predicting where the market might head next.

There are the following three major uses of fair value gap in trading:

Take Profit Levels

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