Price gap (FVG) and Forex Imbalance - Trading tools used by pros

Starting with Trader Problems

Have you ever experienced sudden price movements that make it difficult to find entry and exit points? Fair Value Gap (FVG) and imbalance forex are market mechanisms that can help solve this problem. In fact, these concepts rely on market behavior that attempts to “fill” gaps created by large trades.

Fair Value Gap (FVG) - Three Candles and Balanced Offerings

What is FVG?

Whether called Fair Value Gap or imbalance forex, both are price gaps caused by rapid price surges. They typically occur during low liquidity periods, such as market close-open sessions.

Characteristics of FVG:

• Composed of three candles moving in the same direction
• The second candle often shows imbalance, indicating a disharmony between buy and sell orders
• The gap occurs between the wick (body) of the first candle and the third candle

Why is imbalance forex important?

Imbalance is not just a regular price gap. It signals a large accumulation of buy or sell orders over a short period. The second candle acts as a “pointer,” indicating something abnormal in the market — a signal that the price will likely revert to fill the gap.

Markets dislike imbalance, acting as a magnet to pull prices back to fill these gaps later.

Behavioral Models: Uptrend and Downtrend

Downtrend via Bearish Fair Value Gap

Typically seen as three consecutive red candles, with a gap between the low of the first candle and the high of the third.

How to read the chart:

• Low of the first candle = upper boundary of FVG
• Second candle = imbalance signal
• High of the third candle = lower boundary of FVG

When the price rises back into the FVG zone, you have a potential sell point that may “stack” and the price is likely to accelerate downward again.

Uptrend via Bullish Fair Value Gap

Three consecutive green candles, with a gap between the high of the first candle and the low of the third.

How to read the chart:

• High of the first candle = lower boundary of FVG
• Second candle = imbalance signal
• Low of the third candle = upper boundary of FVG

When the price drops back into the FVG zone, you have a buy point, and the price is likely to bounce higher.

Events that Trigger FVG Formation

1. News Surprises

Unexpected news (earnings surprise, policy change) can cause heavy trading, pushing prices across ranges without anyone there to “buy or sell” in that area.

2. Market Open-Close

During opening or closing hours, liquidity gaps called “voids” often cause prices to spike up or down.

3. Economic Data Releases

Interest rates, unemployment, GDP — these can push trading activity in either direction.

4. Weekend Gaps

Between Friday close and Monday open, FVGs often occur due to news over the weekend.

5. Institutional Trading

Large hedge funds or banks trading massive volumes can create gaps.

3-Step FVG Trading Strategy

Step 1: Determine Trend Direction

First, understand where the market is heading:

• Uptrend: Higher lows and higher highs → Focus on Bullish FVG
• Downtrend: Lower highs and lower lows → Focus on Bearish FVG

Viewing higher timeframes (4 hours, daily, weekly) helps see the bigger picture.

Step 2: Identify Support and Resistance Zones

After knowing the trend:

• In an uptrend: Look for support zones (buy zones) — key demand areas
• In a downtrend: Look for resistance zones (sell zones) — key supply areas

If an FVG exists at these zones and imbalance signals are clear, the opportunity is stronger.

Step 3: Set Stop Loss and Profit Targets

Manage risk before entering:

• For buys: Place stop-loss below the FVG zone
• For sells: Place stop-loss above the FVG zone
• Profit targets: Set at next resistance/support levels

5 Tips for Trading Fair Value Gaps

1. Combine with Other Indicators

FVG is not foolproof; sometimes prices do not revert. Therefore:

• Use RSI, MACD, or Moving Averages for confirmation
• Multiple indicators improve decision accuracy

2. Use Stop Losses

This protects you from losses:

• Set stop-loss points where your trade idea is invalidated
• Exit small if necessary before losing all capital

3. Wait for Market Confirmation

Don’t jump in prematurely:

• Wait for price to enter the FVG zone
• Look for confirmation signals like candlestick patterns or volume surges
• Patience increases accuracy

4. Time Your Entries Well

Timing is crucial:

• Enter when liquidity is high (not during quiet market periods)
• Avoid trading during weeks with major news
• If unsure, skip the trade

5. Be Cautious of Liquidity

Be aware that:

• FVG near previous day’s high/low may be false signals
• Wait for a clear retest (retest) before entering
• Caution leads to longer-term profits

Pros and Cons

Advantages ✅

• Opportunities for quick profits from rapid moves
• Usable across all timeframes (5 minutes to weekly)
• Simple concept, suitable for beginners
• Applicable to Forex, stocks, crypto, commodities

Disadvantages ⚠️

• Not perfect — prices may not always revert
• Should be combined with other indicators for better accuracy
• Risk of entering at the wrong point
• Requires practice to become proficient

Summary

Fair Value Gap and imbalance forex are intriguing tools once you understand how they work. Price gaps are not accidental — they result from market imbalance seeking correction.

Key points:

1. Recognize gaps (FVG) and imbalance signals (imbalance)
2. Understand when they occur
3. Wait for confirmation, don’t rush in
4. Set stop-loss and profit targets
5. Combine with other methods

Trading FVG requires discipline, patience, and good planning. Don’t expect perfection every time. Even the best methods involve losses.

⏳ Remember: The best way is to practice on a demo account first. The understanding gained from real testing translates into real profits later.

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