Fair Value Gaps Basics: What FVGs Really Mean in Market Structure
A Fair Value Gap (FVG) is simply an imbalance—price moved too fast, too aggressively, and skipped trading in between. That gap represents inefficiency, and markets often return to test it. Understanding FVGs helps you see when displacement is real and where price is likely to pull back.
How Fair Value Gaps Form
An FVG forms over three candles when:
- Candle 1’s high is below Candle 3’s low (for a bullish FVG)
- Candle 1’s low is above Candle 3’s high (for a bearish FVG)
This means price never traded in between those levels—an imbalance. That imbalance tells you aggressive market orders overwhelmed the book. This lines up with everything in market order flow basics.
Why FVGs Matter
FVGs matter because they show:
- Strong displacement – real momentum
- Inefficiency – price skipped levels
- Potential retracement zones – where price may return
- Institutional involvement – aggressive activity
They tell you whether a move is backed by real power or just noise.
The Three Types of FVG
| Type | Description | Meaning |
|---|---|---|
| Bullish FVG | Price gaps upward between candles | Strong buying imbalance |
| Bearish FVG | Price gaps downward between candles | Strong selling imbalance |
| Rebalanced | Price returns later to fill the inefficiency | Fair value restored |
How Traders Use FVGs
You don’t chase FVGs blindly. You use them inside bigger context like:
- Market structure – trend direction, swing points
- Liquidity levels – see liquidity pools basics
- Market profile levels – VAH, VAL, POC
A bullish FVG inside a strong bullish structure is fuel for continuation. A bearish FVG into prior value lows is a warning of possible reversal.
FVGs and Displacement
Displacement = strong, one-directional movement caused by real imbalances. FVGs show where that displacement started. When price returns to an FVG, it’s often retesting the origin of the move for continuation.
Fair Value Gaps Are Not Magical
Some traders worship FVGs like a holy signal. They’re not. They’re just a record of where imbalance happened. Use them as context—not as a stand-alone trade. Combine them with structure and order flow and you’ll see where the real setups are.