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Trading Strategies

Fair Value Gaps: Trading Institutional Imbalances

Master the art of identifying and trading Fair Value Gaps (FVG) for high-probability entries with excellent risk-to-reward ratios.

MMS Signal TeamAugust 19, 202510 min read

What is a Fair Value Gap (FVG)?

A Fair Value Gap (FVG) is an imbalance in the market where price moves so aggressively that it leaves behind unfilled orders. These gaps appear on the chart as areas where there's little to no overlap between candlesticks, creating a "gap" in price action that the market often returns to fill.

In ICT methodology, FVGs represent areas where institutional algos need to balance their books. When smart money moves price aggressively, they create these imbalances that must eventually be filled for true price discovery.

Information

Key Concept: Fair Value Gaps are not just empty spaces on a chart - they represent unfilled institutional orders that create magnetic zones where price is likely to return.

How to Identify Fair Value Gaps

The Three-Candle Pattern

A valid FVG requires three consecutive candles:

  1. 1First Candle: The setup candle that creates one side of the gap
  2. 2Second Candle: The imbalance candle that moves aggressively, creating the gap
  3. 3Third Candle: The candle that continues the move, confirming the gap

Bullish Fair Value Gap

In a bullish FVG:

  • The high of candle 1 does not overlap with the low of candle 3
  • Candle 2 is a strong bullish candle that creates the imbalance
  • The gap is the space between candle 1's high and candle 3's low

Bearish Fair Value Gap

In a bearish FVG:

  • The low of candle 1 does not overlap with the high of candle 3
  • Candle 2 is a strong bearish candle creating the imbalance
  • The gap is the space between candle 1's low and candle 3's high

Types of Fair Value Gaps

1. Common Fair Value Gaps

These are standard FVGs that form during regular market moves:

  • Often get filled quickly (within a few candles)
  • Good for scalping opportunities
  • Lower timeframe entries

Trading Fair Value Gaps: Step-by-Step Strategy

Step 1: Identify Market Bias

Before trading any FVG, determine the higher timeframe bias:

  • Check Daily/4H charts for overall direction
  • Identify if you're in a trending or ranging environment
  • Note any significant support/resistance levels

Tip

Pro Tip: The best FVG trades occur when the gap aligns with other ICT concepts like Order Blocks, Premium/Discount zones, or key Fibonacci levels.

Conclusion

Fair Value Gaps are powerful tools in the ICT trader's arsenal. They provide high-probability entry opportunities when combined with proper market structure analysis and risk management.

Next Steps: Study how FVGs interact with Order Blocks and liquidity levels. The combination of these concepts creates some of the highest probability setups in institutional trading.