What is fvg

Definition and Origin

FVG, or Fair Value Gap, is a technical analysis concept that identifies price inefficiencies in financial markets. The term gained prominence through the ICT (Inner Circle Trader) market structure framework, which emphasizes how markets move through imbalances and equilibrium seeking. When price gaps appear on charts, creating unfilled space, traders interpret these as temporary inefficiencies that the market will eventually correct.

How Fair Value Gaps Form

Fair Value Gaps form when price makes a sudden move—either up or down—that creates space between candlestick bodies or wicks. This happens during high volatility, news events, or strong directional moves where not all price levels are touched. The gap represents an imbalance between buyers and sellers that the market typically seeks to correct by returning price to fill that gap.

Trading Applications

• Entry Signals—Traders enter positions expecting price to move toward FVG zones
• Stop Loss Placement—FVGs help determine where to place stops based on market structure
• Profit Targets—Gap filling zones often serve as natural profit-taking levels
• Trend Identification—Multiple consecutive gaps can confirm strong trends
• Reversal Points—Large gaps sometimes mark significant reversal areas

Practical Analysis

To identify FVGs, traders examine candlestick charts looking for three consecutive candles where gaps exist. The concept assumes that markets operate on supply and demand principles and that unfilled price levels represent areas where traders' orders accumulate. This makes these zones psychologically and technically significant for future price movement.

Important Considerations

While FVG analysis is popular among technical traders, gaps don't always get filled, and market context remains crucial. Fundamental news, macroeconomic events, and broader market trends should always inform trading decisions. FVGs work best as part of a comprehensive trading strategy that includes risk management, position sizing, and multiple confirmatory indicators.