What Is a Fair Value Gap?
A fair value gap forms when three consecutive candles create a discontinuity: the wick of candle one and candle three do not overlap, leaving a void on candle two's thrust. Bullish FVGs appear in upswings; bearish FVGs in downswings. The zone represents aggressive buying or selling where little two-sided trade occurred—markets often revisit to facilitate transactions. FVG logic originated in order-flow and ICT-style frameworks but applies visually on any OHLC chart. Not every small wick gap qualifies; clean imbalances on momentum legs matter most.
Higher-timeframe FVGs on four-hour or daily charts filter noise from one-minute micro gaps.
How Do You Trade FVG Mitigation Entries?
With bullish bias, wait for price to pull back into the lower portion of a bullish FVG, then enter on rejection—bullish candle close, break of micro high—with stop below the gap or swing low. Bearish trades sell into bearish FVG mitigation with stop above gap high. Partial fill of the gap is common; full fill invalidates urgency but not always trend. Combine with higher-timeframe trend: buy bullish FVG retests only when daily structure supports longs. First touch often reacts; second touch may break through if momentum exhausted.
Define whether you enter at gap edge or midpoint—mixing rules without testing blurs results.
When Do Fair Value Gap Strategies Work Best?
Trending sessions after clear displacement legs—sharp moves on volume leaving gaps behind. Liquid index futures and large caps respect zones more than halted small caps. Alignment with VWAP and higher-timeframe support raises quality. FVGs fail in chop when multiple overlapping gaps create conflicting levels. News spikes that gap through prior FVG without pause invalidate neat retest plans. Use FVG as entry refinement within trend or breakout strategies, not as standalone prophecy.
Session context matters—opening drive FVGs behave differently from midday drift imbalances.
Where Do Stops and Targets Go?
Stops below bullish FVG low or above bearish FVG high, plus buffer for wick pierce. If price closes through the entire gap against bias, exit—mitigation failed. Targets: prior swing high for longs, next liquidity shelf, or fixed two-to-one R. Trail under higher lows after one R achieved. Size from stop distance; overlapping gaps may require wider stops—reduce shares. Multiple FVGs in trend—trade freshest unfilled zone nearest price for tighter risk.
Pre-mark gaps after impulse legs; do not hunt historical gaps far below price with poor reward-to-risk.
What Are Common FVG Trading Mistakes?
Labeling every tiny wick separation as FVG. Trading against daily trend because a one-minute gap printed. No stop beyond gap—price fully fills and continues. Overleveraging on first touch without confirmation candle. Ignoring that gaps can remain open for days in strong trends without hurting continuation. Backtest twenty FVG retests on your symbols with written rules before live size. FVG strategies add precision to entries when trend, volume, and invalidation are already defined.
If three overlapping gaps sit in the same zone, simplify to horizontal support rather than debating which FVG is valid.