Fair Value Gap (FVG) in Forex Trading: Meaning, Strategy, and Why they are important

What Is a Fair Value Gap (FVG)?

A Fair Value Gap (FVG) is a price imbalance in the forex market caused by aggressive buying or selling, where price moves so fast that it leaves behind unfilled orders. This imbalance creates a “gap” in price that the market often revisits to rebalance liquidity.

FVGs are a core concept in Smart Money Concepts (SMC) and ICT trading strategies, widely used by institutional and professional traders to identify high-probability trade setups.

In simple terms, an FVG represents an area where price moved without fair participation from both buyers and sellers, and the market naturally seeks to return to these zones.

How a Fair Value Gap Is Formed

A Fair Value Gap forms using a three-candle structure:

• The first candle shows price movement in one direction
• The second candle is an impulsive candle with strong momentum
• The third candle continues the move but leaves an imbalance

  

A valid FVG exists when:

• In a bullish FVG, the low of the third candle is higher than the high of the first candle
• In a bearish FVG, the high of the third candle is lower than the low of the first candle

This creates a clear price imbalance on the chart.

Types of Fair Value Gaps

1. Bullish Fair Value Gap

• Occurs during strong buying pressure
• Acts as a support zone
• Traders look for buy opportunities when price retraces into the FVG

  

2. Bearish Fair Value Gap

• Occurs during strong selling pressure
• Acts as a resistance zone
• Traders look for sell opportunities when price retraces into the FVG

  

Why Fair Value Gaps Matter in Forex Trading

Fair Value Gaps are important because they:

• Reveal institutional activity
• Highlight high-probability retracement zones
• Help traders avoid chasing price
• Provide precise entries with tight stop losses
• Align perfectly with liquidity and market structure concepts

Most professional traders wait for price to return to an FVG rather than entering impulsively.

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