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AI Analyst
Connect your own ChatGPT to ask questions about your trades, journal and backtests. Only your data, and read-only unless you let it add and edit trades when you connect (e.g. from a screenshot of your platform).
A three-candle gap left by a fast move, which price often comes back to fill.
Illustration, not real market data.
What it is
A fair value gap is an imbalance left when price moves so fast that the market trades one way only. It shows as three candles where the first and third candles' wicks don't overlap: the gap between them is the FVG.
Bullish FVG: the gap between candle 1's high and candle 3's low, in a move up. Bearish FVG: the gap between candle 1's low and candle 3's high, in a move down.
How to spot it
Find a big displacement candle (candle 2).
Check that candle 1's wick and candle 3's wick don't overlap. The empty space between them is the gap.
FVGs left by moves that broke structure are the ones worth watching.
How to use it
Wait for price to come back into the gap, and look for an entry in the direction of the move that created it.
Many traders use the middle of the gap (50%, the 'consequent encroachment') as the entry and put the stop beyond the gap or the swing.
If a candle body closes all the way through the gap, it has failed and becomes an inversion FVG.
Common mistakes
Trading every gap, including tiny ones in choppy price.
Ignoring the trend: a bullish FVG in a strong downtrend is weak.
