The fair value gap in Forex trading is a tool that beginners must know.

When you start trading Forex, you will encounter situations where prices move suddenly and break out of the previous range. The question is, how to find good entry points? This is where Fair Value Gap (FVG) comes in – a technical analysis method that helps you identify clearer entry and exit points.

What is a Fair Value Gap (FVG)

FVG is a price gap that occurs on the Forex chart when prices jump rapidly up or down without any trading happening between the old and new levels. This situation most easily occurs during periods of low liquidity, such as market open or close, or when major news releases occur.

Why is Fair Value Gap important? Because traders often observe that prices tend to return to fill these gaps later. This is a key signal that can help you make better trading decisions.

Where do value gaps come from?

These gaps do not happen randomly; several factors lead to the formation of FVG:

Market-moving news: When strong economic announcements occur, such as interest rate changes or employment data, the market may react with sharp moves, causing prices to jump over areas without trades in between.

Market open-close: When the market opens on Friday or closes on Sunday, FVGs often appear because the market has been closed, and accumulated news from the past week is released.

High-volume trading: Large investors or hedge funds executing massive orders can push prices quickly, creating gaps in the process.

Low liquidity: During market openings, at night, or during holidays, fewer traders participate, allowing small buy/sell pressures to move prices more than usual.

Main components of FVG

A Fair Value Gap consists of 3 consecutive candles:

• Candle 1: The first candle in the sequence, marking the start of the move.
• Candle 2: Known as “Imbalance” – this candle creates an imbalance in trading, meaning only one side is active.
• Candle 3: The last candle that forms the gap.

The gap is identified between the high of candle 1 and the low of candle 3 (or vice versa, depending on the direction). This area becomes a magnet that pulls prices back to fill the gap.

Advantages of using FVG in trading

• Clear entry and exit points: No need to guess where to enter; you have a clear target.
• Applicable to all timeframes: Whether you look at 5-minute, 1-hour, or daily charts, FVG works across all.
• Works with various assets: Stocks, commodities, crypto, or forex – this method is versatile.
• Quick learning curve: No need for high IQ; understanding basic concepts is enough to get started.

Disadvantages and risks to watch out for

However, FVG is not perfect:

• Prices may not return: Sometimes gaps are not filled, or they are filled in the opposite direction of your expectation.
• Requires other techniques: Don’t rely solely on FVG; combine with indicators like moving averages or RSI.
• Always carry risk: Forex markets are inherently risky; you must have a good risk management plan.

Types of FVG: Bearish and Bullish

Bearish FVG (FVG Bearish )

Occurs when three consecutive candles are decreasing; typically seen as four or three candles in a row. The gap appears between the low of candle 1 and the high of candle 3. When the price enters this gap, it signals potential further decline, making it a good short entry point.

How to read:

• Low of candle 1 = top of FVG
• High of candle 3 = bottom of FVG
• Prediction: Price will continue to fall

Bullish FVG (FVG Bullish )

Occurs when three consecutive candles are increasing; the gap forms between the high of candle 1 and the low of candle 3. When the price returns into this gap, it may be a buy point, as the price could continue upward.

How to read:

• High of candle 1 = bottom of FVG
• Low of candle 3 = top of FVG
• Prediction: Price will continue to rise

How to trade with FVG practically

Once you identify an FVG, what’s next?

Step 1: Look at the overall trend

The key is to see whether the market is in an uptrend or downtrend:

• Uptrend = higher lows and higher highs → look for bullish FVGs
• Downtrend = lower highs and lower lows → look for bearish FVGs

Step 2: Support and resistance levels

After knowing the trend, find support (support) or resistance (resistance):

• In an uptrend = look for support zones where FVG might form
• In a downtrend = look for resistance zones where FVG might form

Step 3: Set stop-loss and take-profit levels

This step is very important:

• Stop Loss (stop): Place it outside the FVG area to prevent losses if your prediction is wrong
• Take Profit (target): Set at the next support or resistance level

Example: If you buy at a bullish FVG, set a stop loss slightly below the FVG, and set take profit at the next resistance level above.

Practical tips for beginners

Use multiple indicators: Don’t rely solely on FVG; supplement with momentum indicators or support/resistance to confirm signals.

Start with larger timeframes: If you’re learning, begin with 1-hour or daily charts, not 5-minute ones (it can be confusing).

Wait for price to return: Don’t rush in; wait for the price to reach the FVG area and look for confirmation from candles or other signals.

Avoid tiny gaps: Small gaps may be noise; focus on prominent FVGs.

Manage liquidity: If the FVG is near the previous day’s high/low, wait for the market to liquidate first; better entry points will appear.

Have a backup plan: Every trade should have a Plan B; if wrong, limit your losses.

Summary

Fair Value Gap is a useful Forex tool for both beginners and experienced traders. It helps clarify entry and exit points. However, it’s important to use it alongside other indicators. Practice and developing your trading intuition will improve your ability to read FVGs and make better decisions over time.

Remember: No trading method is 100% certain, but FVG increases your chances of success. Good risk management + correct FVG techniques = better results.