What is a Fair Value Gap (FVG)?
In the trading world, a Fair Value Gap (FVG) represents a price inefficiency or imbalance. This typically occurs when there's a noticeable gap between the opening, high, low, and closing prices of three consecutive candles. You’ll often see this situation when one candle's range doesn’t fully overlap with its neighboring candles, creating what we call a ‘gap’ in price action.
Why Should Traders Care About FVG?
For many traders, this gap can signal a potential area where the price might retrace to fill the imbalance before continuing its previous trend. Recognizing these gaps can be a game changer, as they can help you pinpoint potential entry or exit points based on market inefficiencies.
Utilizing FVG in Your Trading Strategy
- Identify Gaps: Keep an eye out for those gaps on your charts. They can often indicate where the market is likely to correct.
- Plan Your Entries: Use FVGs to craft your entry and exit strategies, allowing you to capitalize on potential price movements.
- Monitor Market Sentiment: Understanding how the market reacts to these gaps can help you make more informed trading decisions.
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