Imagine a scenario where the price of an asset suddenly jumps, leaving a gap in the price chart. This phenomenon is known as a fair value gap, and it’s a valuable tool for price action traders seeking to identify inefficiencies and potential trading opportunities.
What exactly is a fair value gap?
A fair value gap (FVG) occurs when the price of an asset experiences a significant movement, resulting in a gap between the previous candle’s high/low and the subsequent candle’s high/low. This gap is essentially an area where trading activity was absent, signifying a lack of equilibrium between buyers and sellers.
Formation of Fair Value Gaps in trading
Several factors can contribute to the formation of a fair value gap:
Here’s what characterizes a FVG on a price chart:
Triple-candle pattern: ..........
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What exactly is a fair value gap?
A fair value gap (FVG) occurs when the price of an asset experiences a significant movement, resulting in a gap between the previous candle’s high/low and the subsequent candle’s high/low. This gap is essentially an area where trading activity was absent, signifying a lack of equilibrium between buyers and sellers.
Formation of Fair Value Gaps in trading
Several factors can contribute to the formation of a fair value gap:
- News and Events: Unexpected news announcements or events can trigger strong buying or selling pressure, leading to a rapid price movement that creates a gap.
- Thin Market Conditions: When there is limited liquidity in the market, a small amount of buying or selling pressure can cause a disproportionate price move, resulting in a gap.
- Order Imbalances: Large orders can sometimes overwhelm the available liquidity, causing the price to jump or fall rapidly, leaving a gap in its wake.
Here’s what characterizes a FVG on a price chart:
Triple-candle pattern: ..........
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