Trading Imbalances: How to Use Fair Value Gaps

Difficulty: 🐳🐳🐋🐋🐋 (Novice+)
This article is designed for traders who want to understand Fair Value Gaps (FVGs) in a simple, practical way — without drowning in complex Smart Money Concepts terminology.

🔵 INTRODUCTION
If you’ve studied Smart Money Concepts (SMC), you’ve likely come across Fair Value Gaps (FVGs). For many, the concept feels overcomplicated. In reality, an FVG is just an imbalance in price — a spot where the market moved so fast that it didn’t fully trade both sides.

🔑When price leaves a gap behind, it often comes back later to “rebalance.” This gives traders powerful zones for entries, exits, and target setting.



🔵 WHAT IS A FAIR VALUE GAP?
A Fair Value Gap is formed over three candles:

• Candle 1: The first move (anchor).
  
• Candle 2: The big impulsive candle (the imbalance).
  
• Candle 3: The follow-up candle.
  

The gap exists when the high of Candle 1 is below the low of Candle 3 (in a bullish case). This leaves an “untraded zone” inside Candle 2.

Think of it as a skipped step. Price rushed through so quickly, there wasn’t enough time to trade at fair value.



🔵 WHY DOES PRICE RETURN TO FVGs?
Markets seek balance. When an imbalance forms, algorithms and institutional flows often revisit the gap to collect liquidity and rebalance orders.

This doesn’t mean every FVG gets filled instantly— some remain open for days or even weeks. But many serve as magnets for price.

🔑Key point: An FVG is not a magic level. It’s a clue about where inefficiency sits.

🔵 HOW TO TRADE FVGS SIMPLY

1️⃣ Mark the Zone
Identify the three-candle imbalance. Highlight the gap inside Candle 2.

2️⃣ Wait for Return
Don’t chase the impulsive candle. Instead, wait for price to retrace into the FVG zone.

3️⃣ Trade the Reaction

• Bullish FVG → wait for price to dip into the zone and show bullish reaction
  
• Bearish FVG → wait for price to retest zone and reject downward
  

Stops are usually placed beyond the gap, targets set toward the next liquidity pool or swing level.


🔵 EXAMPLE SCENARIO

• A strong bullish candle leaves an imbalance.
  
• Price continues higher, but a day later revisits the gap.
  
• At bullish rejection candles form with increasing volume.
  
• Entry taken, stop below gap, target at next swing high.
  

🔵 TIPS FOR ADVANCED TRADERS

• Higher timeframe FVGs are stronger and attract price longer.
  
• Not every gap fills — filter with trend direction.
  
• Combine with OBs (Order Blocks) or liquidity zones for more precision.
  
• Ignore small random gaps in low-volume markets.
  

🔵 CONCLUSION
Fair Value Gaps don’t need to be mysterious. They’re simply imbalances in the auction process. By waiting for price to return and react, traders can build structured entries with defined risk.

🔑Instead of overcomplicating SMC concepts, think of FVGs as footprints of urgency — and opportunities for balance.

Do you already trade FVGs, or is this your first time hearing about them? Share your setups below!