Fair Value Gap (FVG)
Quick Definition
A three-candle price imbalance where rapid buying or selling leaves a price inefficiency that the market algorithmically tends to rebalance.
Detailed Explanation
An FVG occurs when the wick high of Candle 1 does not overlap with the wick low of Candle 3, leaving a gap across Candle 2. Price frequently revisits this imbalance zone to restore liquidity equilibrium before resuming its primary trend.
Key Trading Rules & Takeaways
- Created by rapid one-sided institutional displacement.
- Acts as a dynamic price magnet and high-confluence entry zone.
- Can be calculated with 100% mathematical precision by algorithmic scripts.
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Frequently Asked Questions
What is the difference between a Fair Value Gap and a standard Gap?
A standard gap occurs between sessions where no trading occurred. An FVG occurs during continuous trading when momentum is too aggressive for both sides to fill orders.