Fair Value Gaps (FVG) represent moments of institutional imbalance—areas where price moves so aggressively that normal two-sided trading disappears. These gaps are not random; they are footprints of smart money executing size with urgency.
Understanding FVG allows traders to align entries with institutional behavior rather than retail lag. When combined with structure and risk control, FVG becomes a high-precision execution tool rather than a gimmick.
1. What Is a Fair Value Gap?
A Fair Value Gap forms when a candle leaves an inefficiency between the prior and next candle—meaning price did not trade fairly across that range. Institutions often revisit these zones to rebalance orders.
- Bullish FVG: Gap below price after impulsive buying
- Bearish FVG: Gap above price after impulsive selling
2. Why Institutions Respect FVG
Large players cannot fully execute positions at a single price. FVG zones act as re-entry areas where remaining orders can be filled with reduced slippage and better efficiency.
This is why price often reacts sharply when revisiting an FVG—liquidity already exists there.
3. Using FVG for Precision Entries
FVG should never be traded in isolation. The highest probability setups occur when FVG aligns with:
- Market Structure (BOS / CHoCH)
- Higher Timeframe Bias (H4 / Daily)
- Liquidity Sweep or Stop Run
Execution is best refined on lower timeframes (M5–M15) with strict risk control.
4. Risk Management with FVG
Even institutional concepts fail without discipline. Use FVG to define location, not to justify oversized risk.
- Stop Loss beyond structure, not inside the gap
- Risk fixed at ≤ 1% per trade
- Invalidation = immediate exit
Confirm risk parameters using the Lot Size Calculator before execution.
Final Thoughts
Fair Value Gaps are not magic—they are evidence of imbalance. When respected within structure, trend, and disciplined risk, FVG becomes a powerful component of professional execution.
Sharing real experiences from XAUUSD trading to help beginners grow smart.
View Profile →Disclaimer: Educational purposes only — Not financial advice.