A hands-on options curriculum covering real trading concepts. Read the lessons, work through examples, and test your knowledge.
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Lesson 8: 9.7: Fair Value Gaps (FVG) & Imbalances
Identify and trade single-candle inefficiencies and delivery gaps left by aggressive institutional moves.
1. The Anatomy of a Fair Value Gap
A Fair Value Gap (FVG) represents an inefficiency or imbalance in price delivery. It occurs when aggressive market participants dump massive volume, causing a rapid price spike that leaves an unfilled gap on the chart.
To identify an FVG, we look at a three-candle sequence:
• Bullish FVG: A gap exists between the high of Candle 1 and the low of Candle 3. The space in between is only filled by the body of Candle 2, representing an imbalance.
• Bearish FVG: A gap exists between the low of Candle 1 and the high of Candle 3. The space in between is only filled by the body of Candle 2.
2. The Magnet and Rebalance Effect
Because the market seeks perfect efficiency, these gaps act as magnets. Algorithms and market-making engines will eventually steer price back into these imbalances to 're-deliver' orders and achieve balance.
These zones act as highly reliable entry targets. When price pulls back into an FVG located in a Discount zone, it often finds strong support and reverses.
Click to enlargeKNOWLEDGE RECONNAISSANCE
How is a Bullish Fair Value Gap (FVG) geometrically identified on a candlestick chart?
More lessons in this module
- 9.0: Introduction to Market Structure
- 9.1: Swing Highs & Swing Lows
- 9.2: Break of Structure (BOS)
- 9.3: Change of Character (CHoCH)
- 9.4: Understanding Market Liquidity Pools
- 9.5: Internal vs External Structure
- 9.6: Premium vs. Discount Pricing
- 9.8: Putting It Together: The Market Structure Blueprint
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