Fair Value Gap (FVG)

A Fair Value Gap (FVG) occurs when there is a price inefficiency, often visible on a candlestick chart. It is identified by three consecutive candlesticks where the high of the first candlestick and the low of the third do not overlap with the body of the middle candlestick. This visual 'gap' suggests that the price has moved too quickly in one direction, creating an imbalance between buyers and sellers. Traders often interpret the FVG as a signal that the price will eventually return to fill this gap, acting as a potential area of attraction for future prices. Specifically, a bullish FVG forms when the high of candlestick 1 is lower than the low of candlestick 3, implying that supply has dominated the market and that the price could potentially return to be 'bought'. Conversely, a bearish FVG forms when the low of candlestick 1 is higher than the high of candlestick 3, suggesting a dominance of demand and a potential return to be 'sold'. Identifying and using FVGs requires further confirmation with other technical indicators and an understanding of the market context.