Fair Value Gaps (FVG): Trade Price Imbalances with Smart Money Precision

Markets hate inefficiency. When price moves so aggressively that buyers and sellers can't transact at normal levels, a Fair Value Gap forms. These imbalances act as MAGNETS—price will often return to "fill the gap" before continuing. Learn to identify FVGs and trade the inevitable rebalancing.

Welcome to Lesson 53

You've mastered Order Blocks (where institutions transacted), Market Structure Shifts (when trends change), and Liquidity Sweeps (how institutions gather orders). Now you need to understand the PRICE ACTION SIGNATURE these moves leave behind: Fair Value Gaps (FVG).

The Missing Piece: You can identify an Order Block perfectly and wait for price to return to it. But WHY does price return? What PULLS it back? The answer: Fair Value Gaps—zones of price imbalance that the market MUST revisit to achieve equilibrium. FVGs are the "unfinished business" that creates magnetic pull.

The market has an "IOU" at FVG zones. Price will often return to allow sellers who missed the move to participate, allow institutions to fill remaining orders, and rebalance the order books.

This lesson teaches you to identify FVGs using the 3-candle model, understand WHY price returns (mitigation principle), enter at FVG 50% equilibrium (surgical entries), set SL beyond FVG boundaries (objective invalidation), and combine FVG + OB + MSS for triple confluence.

Lesson Chapters

1Chapter 1: Price Imbalance & Fair Value Gaps Defined

~4 min

⚖️ Fair Value vs. Imbalance

Before identifying FVGs on charts, you must understand what they represent fundamentally.

Fair Value (Balanced):

"Both buyers and sellers actively transacting at a price level, creating balanced two-sided auction with price discovery through negotiation."

Normal Trading:

Candle wicks overlap between consecutive candles
Buyers and sellers met at every price level
Orders filled through normal auction process
No imbalance exists

When Fair Value BREAKS (FVG Forms):

Institution executes massive order: "BUY 500 million EUR immediately!"
No time for negotiation, price JUMPS
Price moves: 1.0900 → 1.0920 in seconds
Gap created: 1.0905-1.0915 (NO trading occurred here)
FVG = zone where NO balanced trading happened

Why It Matters:

Market has "IOU" at this zone
Price often returns to rebalance (70-80% mitigation rate)
This creates YOUR trading opportunity

🧲 Why FVGs Act as Magnets

Institutional Reality:

Bank wanted to buy 2B EUR
During explosive move, only filled 600M
Still needs 1.4B EUR
Left PENDING ORDERS in the gap
When price returns = orders activate

Market Mechanics:

Traders who missed move want to participate
Institution has unfilled orders
Market seeks efficiency
Gap acts as magnetic pull

Your Edge:

FVG = IOU from market
Price WILL likely return (70-80% probability)
50% level is magnetic equilibrium
Predictable rebalancing = trading opportunity

Pro Tip

Professional Insight: FVGs aren't mystical—they're order book mechanics. When price moves too fast, pending orders remain unfilled in the gap. Price returns to fill those orders. You're trading documented pending order zones.

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2Chapter 2: Anatomy of the 3-Candle FVG Formation

~5 min

📈 Bullish FVG (Upward Imbalance)

FVGs are identified using a simple 3-candle pattern where the middle candle creates displacement.

The 3-Candle Pattern:

Candle 1 (Before):

High: 1.0910
Establishes the baseline

Candle 2 (Displacement):

EXPLOSIVE bullish move
Gaps away from Candle 1

Candle 3 (After):

Low: 1.0925
Continues upward

The Gap Check:

Does Candle 1 HIGH (1.0910) overlap with Candle 3 LOW (1.0925)?
NO! Gap = 15 pips (1.0910 to 1.0925)
This zone had NO balanced trading = BULLISH FVG

Visual:

1.0940 ─── C3
1.0930 ───
1.0925 ═══ C3 Low (FVG lower boundary)
    ║
    ║ GAP (no trading here)
    ║
1.0910 ═══ C1 High (FVG upper boundary)
1.0900 ─── C1

Trading Implication:

Price often returns to 1.0910-1.0925 zone
50% (1.0917.5) acts as support
Potential bounce/entry zone

📉 Bearish FVG (Downward Imbalance)

The 3-Candle Pattern:

Candle 1 (Before):

Low: 1.1000
Establishes baseline

Candle 2 (Displacement):

EXPLOSIVE bearish move
Gaps away from Candle 1

Candle 3 (After):

High: 1.0985
Continues downward

The Gap Check:

Does Candle 1 LOW (1.1000) overlap with Candle 3 HIGH (1.0985)?
NO! Gap = 15 pips (1.0985 to 1.1000)
This zone had NO balanced trading = BEARISH FVG

Visual:

1.1000 ═══ C1 Low (FVG upper boundary)
    ║
    ║ GAP (no trading here)
    ║
1.0985 ═══ C3 High (FVG lower boundary)
1.0975 ─── C3

Trading Implication:

Price returns to 1.0985-1.1000 zone
50% (1.0992.5) acts as resistance
Potential rejection/short entry

🎯 How to Mark FVGs on Your Chart

Step 1: Find Explosive Moves

Look for candles with large displacement (30+ pips)
These often create FVGs

Step 2: Apply the 3-Candle Test

Check if Candle 1 wick extreme overlaps with Candle 3 wick extreme
If NO overlap = FVG exists

Step 3: Mark the Gap

Bullish FVG: From C1 High to C3 Low
Bearish FVG: From C3 High to C1 Low
Draw horizontal box between these levels

Step 4: Calculate 50% Equilibrium

Bullish FVG (1.0910-1.0925): 50% = 1.0917.5
This is your entry target

Step 5: Set Alerts

Alert when price approaches FVG
Wait for mitigation, don't force it

Pro Tip

Quick Check: If you can't "see through" the middle candle to connect Candle 1 and Candle 3 wicks, you have an FVG. The gap is where price jumped without balanced trading.

Practice Marking FVGs

Master FVG identification on charts

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3Chapter 3: The FVG as a Magnet — The Mitigation Principle

~4 min

🔄 FVG Mitigation Defined

Understanding WHY price returns to FVGs is crucial for trading them confidently.

Mitigation = Price Returning to Fill the Gap

What Happens:

FVG created at 1.0910-1.0925 (bullish)
Price rallies to 1.0980
Then pulls back (retracement)
Enters FVG zone at 1.0920
MITIGATION occurring

Three Mitigation Levels:

Partial Mitigation (Weakest):

Price only touches upper/lower boundary
Doesn't reach 50%
= Weak rebalancing
Lower probability defense

50% Mitigation (Standard):

Price reaches 50% of FVG (1.0917.5)
= Equilibrium achieved
= 70-80% probability of bounce
Professional target

Full Mitigation (Strongest):

Price fills entire FVG
Closes through the gap
= Complete rebalancing
Highest conviction reversal

The Rule: Target 50% mitigation for entries. Anything beyond is bonus.

📊 FVG Mitigation Probability

First Touch (Unmitigated FVG):

Status: Never been touched since creation
Institutional orders: Fully intact
Probability: 70-80% bounce rate
Action: Full 1% risk, aggressive entry

Second Touch (Partially Mitigated):

Status: Touched once, bounced
Some orders filled, some remain
Probability: 55-65% bounce rate
Action: 0.5% risk or confirmation needed

Third+ Touch (Heavily Mitigated):

Status: Multiple touches
Most orders filled
Probability: 40-50% bounce rate
Action: Skip or strong confluence required

Focus on FIRST touch FVGs for maximum probability.

⏳ FVG Lifespan & Timeframes

How Long Do FVGs Remain Valid?

HTF FVGs (Daily, H4):

Can remain valid for weeks/months
Stronger institutional significance
Higher probability mitigations

LTF FVGs (M15, M5):

Valid for hours/days
Less institutional significance
Lower probability

The Hierarchy:

Daily FVG = Highest priority
H4 FVG = High priority
H1 FVG = Moderate priority
M15 FVG = Low priority (use for entry refinement only)

Professional Approach:

Mark HTF FVGs on Daily/H4
Use LTF FVGs for entry timing
Don't trade M15 FVGs alone

Key Insight: FVGs don't guarantee reversals—they identify zones where price is LIKELY to slow, rebalance, or reverse due to pending institutional orders. Combine with Order Blocks and Market Structure for maximum probability.

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4Chapter 4: Trading the FVG — Entry, Stop Loss & Targets

~5 min

🎯 FVG Entry Strategies

Precise execution is what separates profitable FVG trading from guessing.

Strategy 1: Limit Order at 50% (Professional)

Process:

FVG: 1.0910-1.0925 (bullish)
50% = 1.0917.5
Place limit buy at 1.0917.5
Set-and-forget

Pros: Best price, optimal R:R, no emotion
Cons: ~70% fill rate

Strategy 2: Boundary Entry (Conservative)

Enter at first touch of FVG boundary
Bullish: Enter at 1.0925 (upper boundary)
Higher fill rate (~85%)

Pros: Rarely miss
Cons: Worse entry, wider SL

Strategy 3: LTF Confirmation (Active)

Wait for M15 MSS inside FVG
See the defense happen
Enter after confirmation

Pros: Highest confidence
Cons: Requires screen time, worse entry

Recommendation: Strategy 1 (50% limit) for most traders.

🛡️ FVG Stop Loss Placement

The Rule: Place SL 3-10 pips beyond FVG boundary (opposite side from entry).

Bullish FVG Example:

FVG: 1.0910-1.0925
Entry: 1.0917.5 (50%)
SL: 1.0905 (5 pips below lower boundary 1.0910)
Risk: 12.5 pips

Bearish FVG Example:

FVG: 1.0985-1.1000
Entry: 1.0992.5 (50%)
SL: 1.1005 (5 pips above upper boundary 1.1000)
Risk: 12.5 pips

Why This Works:

FVG boundary = rebalancing zone
Beyond this = setup invalidated
Objective structural level

Buffer Guidelines:

3 pips: Daily/H4, low volatility
5 pips: H4/H1, normal volatility (most common)
10 pips: H1/M15, high volatility

📊 Complete FVG Trade Example

GBP/USD H4 Setup:

FVG Identification:

Explosive bullish displacement
C1 High: 1.2800
C3 Low: 1.2825
Bullish FVG: 1.2800-1.2825 (25 pips)

Entry Setup:

Price rallies to 1.2880
Pulls back toward FVG
Limit order at 1.2812.5 (50%)

Risk Management:

Entry: 1.2812.5
SL: 1.2795 (5 pips below FVG)
Risk: 17.5 pips
Lot Size: 0.57 lots ($10k account, 1% = $100)

Targets:

T1: 1.2880 (previous high) = 67.5 pips = 1:3.86 R:R
T2: 1.2920 (major resistance) = 107.5 pips = 1:6.14 R:R

Result:

Price enters FVG, fills limit order
Bounces from 1.2812.5
T1 hit: +$193
T2 hit: +$214
Total: +$407 = 4.07% return

Pro Tip

Pro Tip: FVGs combined with Order Blocks create the highest probability setups. When a FVG overlaps with an OB, you have double confluence = 80%+ win rate potential.

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5Chapter 5: FVG Confluence with Market Structure and Order Blocks

~4 min

🎯 Triple Confluence: FVG + OB + MSS

The most powerful FVG setups occur when multiple SMC concepts align at the same zone.

The A+ Setup:

Component 1: MSS Confirmed

Uptrend HL broken = bearish MSS
Bias: Short

Component 2: Order Block Identified

Final up candle before MSS = Bearish OB at 1.0895-1.0910
Entry zone established

Component 3: FVG Overlaps OB

Displacement created FVG at 1.0900-1.0920
FVG overlaps with OB zone!

The Perfect Storm:

Bearish OB: 1.0895-1.0910
Bearish FVG: 1.0900-1.0920
Overlap zone: 1.0900-1.0910

Entry: 1.0905 (50% of overlap)
SL: 1.0915 (5 pips above OB high)
Risk: 10 pips

= TRIPLE CONFLUENCE
= 75-85% win rate potential

Why It's Powerful:

MSS = trend changed
OB = institution's pending sell orders
FVG = price imbalance pulling price back
Three independent reasons converge

✅ FVG Validation Checklist

Don't trade every FVG. Use this filter:

Criterion 1: Created by BOS/MSS

Was FVG created during structural break?
Example: FVG formed when price broke HH (BOS)
Valid: YES ✅

Criterion 2: HTF Alignment

Is FVG aligned with HTF trend?
Daily uptrend + H4 bullish FVG
Aligned: YES ✅

Criterion 3: Overlaps with OB

Does FVG overlap Order Block?
OB at 1.0895-1.0910, FVG at 1.0900-1.0920
Overlap: YES ✅

Criterion 4: First Touch

Is this first mitigation?
Unmitigated: YES ✅

Perfect FVG (All 4):

✅ BOS/MSS displacement
✅ HTF alignment
✅ Overlaps OB
✅ First touch
= A+ FVG (75-85% win rate, full 1% risk)

Good FVG (2-3 Criteria):

✅ BOS/MSS
✅ HTF alignment
❌ No OB overlap
❌ Second touch
= B FVG (55-65% win rate, 0.5% risk)

📋 FVG + OB Confluence Examples

Scenario 1: Perfect Alignment

Bearish OB: 1.1000-1.1015
Bearish FVG: 1.1005-1.1020
Overlap: 1.1005-1.1015 (10 pips)
Entry: 1.1010, SL: 1.1020, Amazing R:R

Scenario 2: No Overlap (Separate Zones)

Bullish OB: 1.0890-1.0905
Bullish FVG: 1.0910-1.0925
No overlap
Two separate entry zones, choose OB (stronger)

Scenario 3: Partial Overlap

Bullish OB: 1.0895-1.0910
Bullish FVG: 1.0905-1.0920
Overlap: 1.0905-1.0910 (5 pips tight!)
High precision entry zone

Rule: The more overlap, the stronger the confluence.

Professional Standard: Never trade FVGs in isolation. Always combine with at least ONE other SMC concept (OB, MSS, or liquidity sweep). Single-factor setups have 50-55% win rates. Multi-factor setups have 70-85% win rates.

Practice FVG Confluence

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6Chapter 6: Summary, Quiz & Next Steps

~5 min

Summary & Conclusion

Fair Value Gaps are zones of price imbalance that act as magnets for future price action.

Key Principles (0/15)

FVG = price imbalance

Zone where no balanced trading occurred

Created by explosive moves

Institutional orders cause rapid displacement

3-candle identification

C1 wick extreme doesn't overlap C3 wick extreme

Bullish FVG

C1 High to C3 Low (gap going up)

Bearish FVG

C3 High to C1 Low (gap going down)

Mitigation = price returning

Price fills the gap (70-80% probability)

50% equilibrium = optimal entry

Best price for entries

First touch highest probability

70-80% win rate unmitigated FVGs

SL beyond FVG boundary

3-10 pip buffer for invalidation

HTF FVGs stronger

Daily/H4 more significant than M15

FVG + OB = maximum confluence

75-85% win rate potential

Never trade FVGs alone

Always combine with OB, MSS, or liquidity

Created by BOS/MSS

Structural displacement validates FVG

HTF alignment essential

FVG with HTF trend = higher probability

FVGs are pending order zones

Not mystical—order book mechanics

The Edge: FVGs aren't predictions—they're documented zones where institutions couldn't fill their entire orders during explosive moves. When price returns, those pending orders activate. You're trading order book mechanics, not hope.

Quiz

A Fair Value Gap (FVG) is created when:

Answer:

An FVG exists when you CANNOT connect Candle 1's wick extreme with Candle 3's wick extreme—the middle candle (Candle 2) displaced so aggressively that a gap remains. For BULLISH FVG: C1 High doesn't reach C3 Low (gap = imbalance going up). For BEARISH FVG: C3 High doesn't reach C1 Low (gap = imbalance going down). This gap represents a zone where NO balanced two-sided trading occurred—institution moved price too fast for normal auction process. The market has an 'IOU' at this zone and often returns (70-80% probability) to rebalance by filling pending institutional orders left in the gap.

When trading an FVG mitigation, the professional entry point is typically at:

Answer:

The 50% EQUILIBRIUM of the FVG is the optimal entry point. Example: Bullish FVG from 1.0910-1.0925 (15-pip gap) → 50% = 1.0917.5. Why? (1) Institutional orders often cluster around equilibrium, (2) Provides best Risk:Reward—tightest SL yet high probability, (3) Historically 70-80% bounce rate at 50% level for unmitigated FVGs, (4) Professional standard used by institutions. Entering at boundary = worse R:R (price might wick through). Random entry = no structure. Place limit order at 50%, set-and-forget.

The highest-probability FVG trade setup occurs when:

Answer:

TRIPLE CONFLUENCE = maximum probability (75-85% win rate). Components: (1) FVG OVERLAPS Order Block (both have pending institutional orders = double magnet), (2) Created during BOS/MSS (structural significance = validated by trend change), (3) FIRST TOUCH (unmitigated = all orders intact). Example: Bearish MSS breaks HL, creates Bearish OB at 1.0895-1.0910, displacement creates FVG 1.0900-1.0920, overlap zone 1.0900-1.0910 = ENTRY. This is the A+ SMC setup. Single FVG alone = 50-55% win rate. M5 FVGs = noise. Stacked FVGs = confusion, not confluence.

Why does price return to fill FVGs (the mitigation principle)?

Answer:

FVGs are PENDING ORDER ZONES. During explosive institutional move (e.g., bank buys 2B EUR), price moves too fast (1.0900 → 1.0920 instantly). Institution only filled 600M of 2B order during spike—still needs 1.4B EUR. They LEAVE PENDING BUY ORDERS in the gap (1.0910-1.0920 zone). When price naturally retraces and hits 1.0915 (FVG 50%), those 1.4B pending orders ACTIVATE = massive buy pressure = bounce. This isn't Fibonacci (mathematical, not order-based). Not psychology (S/R). Not random (mechanical order book process). FVG mitigation = documented pending institutional orders activating.

Call to Action

🧲 Stop ignoring imbalances. Start trading the magnet.

Fair Value Gaps aren't mystical—they're order book mechanics. When institutions move price too fast, pending orders remain in the gap. Price returns to fill those orders.

Your Action Steps:

Mark HTF FVGs on H4/Daily charts
Apply 3-candle test (C1 wick extreme to C3 wick extreme)
Calculate 50% equilibrium for each FVG
Look for FVG + OB overlap (maximum confluence)
Set limit orders at 50% level
SL beyond FVG boundary (5-pip buffer)
Target opposite liquidity or structural levels

For the next 30 days, only trade FVGs that overlap with Order Blocks or were created during BOS/MSS.

Remember: Price doesn't return to FVGs by magic—it returns because institutions have pending orders there. Trade the orders, not the hope.

Identify. Validate. Wait. Execute. Repeat.

Master FVG Trading

Practice trading price imbalances with institutional precision. Identify FVGs using 3-candle patterns, enter at 50% equilibrium, and combine with Order Blocks for maximum confluence. Trade the market's magnets.

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Prerequisites

Before studying this lesson, ensure you've mastered these foundational concepts:

Ready to trade price imbalances like institutions do? Master FVGs and unlock surgical entry precision.

Ready to continue?

Mark this lesson as complete to track your progress.

Welcome to Lesson 53

Lesson Chapters

Ready to practice?

Practice Marking FVGs

Apply What You've Learned — Master Accumulator Compounding in Action

Master FVG Entries

Practice FVG Confluence

Summary & Conclusion

Key Principles (0/15)

Call to Action

Your Action Steps:

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Prerequisites

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