Fair Value Gap in Trading: A Complete Guide for Traders

Jakarta, Pintu News – Fair Value Gap (FVG) is an important concept in technical analysis that describes areas of unfilled price due to rapid market movements. This zone of imbalance is often a key reference point for traders to identify price retest opportunities and understand the dynamics of institutional order pressure. By studying the FVG, traders can read the market structure more accurately and improve the precision of their trading strategies.

What is Fair Value Gap in Trading?

Fair Value Gap (FVG) is an important concept in technical analysis that refers to areas on the price chart where there is a significant imbalance between supply and demand.

This imbalance occurs when the market moves too fast, leaving the price zone without sufficient transactions. In practice, FVG provides information about areas that are likely to be retested as the market naturally tends to seek equilibrium.

The FVG concept is widely used by institutional traders and analysts at Smart Money Concepts because it reveals market structures that are not visible through common indicators. FVG helps traders understand how large order pressure can drastically shift prices.

By utilizing this insight, traders can identify optimal zones for entry, exit, and risk mitigation. A deep understanding of FVG opens up opportunities to read market intentions more accurately than simply following price movements visually.

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Fair Value Gap Example

To illustrate, suppose a stock is trading at $500 and then suddenly jumps to $520 due to heavy buying pressure from institutions. This spike leaves an empty area between the two prices as there are no transactions to fill the price levels in between. This area is called the Fair Value Gap, and will usually pull the price back to seek market equilibrium.

Retesting the FVG area reflects the market’s tendency to normalize extreme fluctuations that occur due to large orders or news shocks. Traders who understand this pattern can utilize retests as high probability entry opportunities.

Conversely, they can also avoid potential sudden reversals when prices fill the gap again. Thus, FVG is an important reference in understanding volatility and market behavior triggered by the participation of large players.

How to Determine Fair Value Gap

Determining the FVG requires a thorough understanding of the candlestick structure. FVG is generally formed from a three-candle pattern where the middle candle has such extreme movement that there is no overlap between the high or low of the first and third candles. This pattern signals that the market is moving too fast and creating an imbalance.

In addition to the candlestick structure, traders should also pay attention to the volume that accompanies the gap formation. Large volume indicates that institutions may be involved in the movement.

Additional confirmation can be obtained from higher timeframes, as FVGs on large timeframes tend to be more powerful and relevant. The combination of price action, volume, and multi-timeframe confirmation makes identifying FVGs much more accurate and useful in trading strategies.

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Meaning of Imbalance Fair Value Gap

Imbalance in FVG indicates the dominance of one side of the market at any given moment, either buyers or sellers, causing extreme order pressure.

These imbalances are usually triggered by external factors such as the release of important economic data, corporate earnings announcements, or sudden policy changes that alter market risk perception. Such situations create knee-jerk reactions that often exceed the normal liquidity capacity of the market.

Imbalance not only illustrates the strength of price movements, but also indicates potential areas of future sensitivity. Institutions often direct their orders to the FVG area as the zone reflects prices that are considered not yet “fair.”

When prices return to areas of imbalance, institutions often engage in accumulation or distribution, triggering new price reactions. Understanding these dynamics gives traders an edge in reading the intentions of large players.

Conclusion

The Fair Value Gap is an important tool that helps traders understand the imbalances of price structures in fast-moving markets. By identifying areas that are likely to be retested, traders can plan entry and exit strategies more effectively.

However, FVG should not be used in isolation; a combination with additional indicators, volume analysis, and understanding the market context is essential to improve signal accuracy. Understanding these concepts helps traders approach the market with a more strategic and informed perspective.

FAQ

What is Fair Value Gap (FVG) in trading?

FVG is an unfilled price area resulting from extreme movements, reflecting an imbalance between buyers and sellers.

Why is FVG important for traders?

Since the FVG area is often the point where the price returns to seek equilibrium, it helps determine entry and exit.

How to identify FVG?

Usually through a three-candle pattern where the second candle moves strongly without overlapping with the first and third candles.

What are the main causes of FVG formation?

Large institutional orders, news shocks, economic data releases, or policy changes that trigger sudden price spikes.

Can FVG be used as a trading strategy?

Yes, FVG is often used as a retest reference, but it should be combined with other indicators and analysis for validation.

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*Disclaimer

This content aims to enrich readers’ information. Pintu collects this information from various relevant sources and is not influenced by outside parties. Note that an asset’s past performance does not determine its projected future performance. Crypto trading activities have high risk and volatility, always do your own research and use cold cash before investing. All activities of buying and selling bitcoin and other crypto asset investments are the responsibility of the reader.

Reference:

• ACY Securities. Fair Value Gaps Explained: Smart Money Footprints in the Market. Accessed on December 10, 2025
• Angel One. What is Fair Value Gap? Accessed on December 10, 2025
• Ventura Securities. Fair Value Gap: Meaning, Definition & All You Need to Know. Accessed on December 10, 2025
• Featured image: OSL