Get to Know Fair Value Gap - A Game-Changing Tool for Forex Traders

Common Problems Faced by Forex Traders

The volatility of forex prices is intense and difficult to understand. Many traders get lost trying to find entry points because prices fluctuate irregularly. Such situations make profit-making challenging. But once you understand the principles of Fair Value Gap (FVG), the scenario will change.

Fair Value Gap - Valuable Price Gaps

Fair Value Gap or FVG Forex is a phenomenon that occurs on the price chart when the forex price moves rapidly and jumps over a certain price zone without any trading happening. This gap results from market opening-closing or low liquidity conditions, causing prices to spike sharply.

Interestingly, traders often see FVG as a “magnet” that pulls prices back. This means prices tend to return into the original gap. This is a golden opportunity for traders to set entry points.

Structure of FVG - Essential Components

FVG Forex consists of 3 candlesticks moving in the same direction:

• First candlestick: Initiates the movement
• Second candlestick: Acts as the “imbalance center” indicating an upcoming FVG
• Third candlestick: Ends the price movement

The gap between the first and third candlesticks is the FVG we are looking for. This gap reflects market imbalance. When many traders buy or sell in a short period, prices jump over normal zones.

Formation of FVG - Causes and Opportunities

News Crisis

When important news hits, the market may react violently. For example, if a central bank announces a change in interest rates or GDP exceeds expectations, forex prices may spike up or down suddenly. During such times, no one is willing to buy or sell, creating gaps.

Institutional Capital

When large banks or hedge funds buy or sell huge amounts, prices can move rapidly, resulting in FVG.

Market Opening-Closing Times

During market open or close, liquidity often drops, making prices more prone to jump.

Weekend Gaps

Gaps are common at Monday openings because markets close on Friday. Events that happen over the weekend can cause such gaps.

Types of FVG - Bullish and Bearish

Bullish FVG (Uptrend)

Three green candlesticks (Close higher than open) indicate that prices may retrace back into the gap before continuing upward. Forex traders often buy around FVG, expecting prices to push higher.

• First candlestick low = FVG low point
• Third candlestick high = FVG high point

Bearish FVG (Downtrend)

Three red candlesticks (Close lower than open) suggest that prices might break back up to fill the gap before the downtrend ends. Traders often sell around FVG.

• First candlestick high = FVG high point
• Third candlestick low = FVG low point

Trading FVG Forex in Three Steps

Step 1: Identify Market Trend

Before relying solely on FVG, understand the market momentum:

• Uptrend: Higher lows and higher highs → look for buy points
• Downtrend: Lower highs and lower lows → look for sell points

For greater accuracy, use higher timeframes like 4-hour or daily charts.

Step 2: Find Support and Resistance Zones

After knowing the trend, locate key zones:

• Uptrend: Focus on support (buy zones)
• Downtrend: Focus on resistance (sell zones)

Where FVG intersects with support/resistance zones is the “golden point.”

Step 3: Set Stop Loss and Take Profit

Risk management is crucial:

• Stop Loss: Place above/below the FVG (opposite to the trading direction)
• Take Profit: Set at the next resistance/support level

This method protects your capital and locks in profits.

FVG Trading Strategies You Must Know

1. Combine Indicators

Don’t rely on FVG alone. Use with:

• Moving averages
• RSI or MACD
• Support and resistance levels

Combining these increases accuracy and reduces false signals.

2. Wait for Market Confirmation

Before entering a trade, wait for market confirmation that prices will move in the FVG direction, such as observing the next candlestick pattern.

3. Timing

Enter trades when liquidity is good, especially during market open or at designated times.

4. Patience

Not every gap should be traded. Sometimes waiting for a “consolidation” is better than trading weak and unclear FVG.

Advantages and Limitations

Advantages

• Clear and well-defined entry-exit opportunities
• Applicable across all timeframes from minutes to daily
• Usable in various markets: stocks, commodities, currencies
• Easy to learn even for beginners
• Provides consistent returns when used correctly

Limitations

• Price does not always return every time
• Large FVGs may take a long time to fill
• Must combine with other methods for better efficiency
• Risk from unexpected major news

For Beginner Forex Traders

FVG Forex is a tool that helps you understand the market and find entry-exit points more easily. Practicing with virtual money on Forex provides direct experience. It’s recommended to study technical analysis and risk management further to trade consistently.

Using Fair Value Gap along with patience and discipline is key to success in the ever-changing world of forex.