Overview
This lecture explains the concept of Fair Value Gap (FVG) in trading, how to identify them on charts, and their practical significance in market corrections.
Fair Value Gap (FVG) Basics
- FVG stands for Fair Value Gap, a common price pattern in trading.
- An FVG occurs between three consecutive candles where the first and third candle wicks or bodies do not touch.
- FVGs indicate a "gap" in price action that the market often returns to fill.
- The market rarely leaves gaps unfilled; it will eventually correct to revisit these areas.
Identifying FVGs on Charts
- The three-candle "polygamous relationship" is key for FVG identification.
- If the wick or body of the first and third candles are not touching, a gap exists.
- Compare candles for both wick-to-wick and body-to-body connections to spot gaps.
- Gaps can be visually obvious or subtle, especially after fast market moves (e.g., market open after news/events).
Examples and Chart Analysis
- FVGs can be found on all timeframes, from 15-minute to hourly charts.
- Gaps occur frequently, particularly after weekends or major news (e.g., Friday to Sunday gaps).
- Mark gaps and observe when subsequent price action returns to fill them.
- Once filled, markets may react or reverse at those zones, helping with trade entries.
Trading FVGs
- FVGs can be traded similarly to supply and demand zones: wait for price to return and show confirmation.
- Enter trades after a gap is tapped/fill is attempted and confirmation appears.
- Always manage risk by setting stop losses according to your personal strategy.
Key Terms & Definitions
- Fair Value Gap (FVG) — A gap between three candles where the first and third candle wicks/bodies are not touching.
- Wick — The thin vertical line above/below the candle body, showing price highs/lows within the period.
- Body — The solid part of the candle, indicating open-to-close price movement.
- Supply and Demand Zones — Price areas where buying or selling pressure is significant, often leading to reversals or continuations.
Action Items / Next Steps
- Practice marking FVGs on various timeframes in your trading platform.
- Observe how and when gaps are filled during live market conditions.
- Review additional resources or videos on supply and demand for deeper understanding.