The fair value gap (FVG), or price imbalance, is a key idea in Smart Money Concepts. Understood well, it helps spot zones where price is likely to return. Understood badly, it becomes an excuse to trade anything. Let's clear it up.
Simple definition
A fair value gap appears during a fast move that leaves a "hole": across three consecutive candles, there's a gap between the wick of the first and the wick of the third, not filled by the second. That space reflects an imbalance between buyers and sellers — price moved too fast for trades to balance out.
The working hypothesis: the market tends to come back to "fill" this imbalance, at least partly, before continuing. Hence the value of these zones as decision points.
Why the FVG is useful
- It identifies probable return zones for price, useful to look for an entry or a target.
- It combines powerfully with order blocks and liquidity: an FVG that coincides with an order block is more credible than an isolated FVG.
- It gives an objective framework (three candles, a measurable gap) rather than a visual impression.
How to use it without getting trapped
The FVG is not a buy or sell signal in itself. A few common-sense principles:
- Context first: an FVG in the direction of the trend and structure is more relevant than against it.
- Not all gaps fill: it's a statistical tendency, not a law. Price can ignore an FVG for a long time.
- Risk management: even on a nice zone, a stop-loss and adapted sizing remain mandatory.
FVG and timeframes
A fair value gap doesn't carry the same weight depending on the timeframe. A gap on H4 matters more than one on M1, which is noisier. A common practice is to spot the imbalance on a higher horizon, then refine execution on a lower one — always respecting the broader structure.
From concept to automation
Because it rests on a measurable definition, the FVG is among the ideas you can embed in an Expert Advisor. It's one of the SMC building blocks our bots rely on. Useful reminder: automation brings discipline, not a guarantee of profit. To understand the nuance, read how a bot learns from its mistakes.
Continue with order blocks, liquidity and the full glossary.
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