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Fair Value Gaps (FVG) are a concept from price action trading, especially popular in smart money concepts (SMC) and institutional trading. They refer to imbalances in price movement where there was little to no trading, creating a “gap” in the market that price may return to later.

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🔍 What is a Fair Value Gap?

A Fair Value Gap typically occurs when:

Price moves very quickly in one direction (usually due to strong buying or selling).

It leaves behind a 3-candle structure where:

Candle 1: A bullish or bearish candle.

Candle 2: A large impulsive candle.

Candle 3: A candle that does not overlap with the first candle.

The gap between Candle 1’s high/low and Candle 3’s low/high is the Fair Value Gap.

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📊 Example:

Let’s say we have a strong bullish move:

Candle 1: Bearish, closes at $98.

Candle 2: Bullish, opens at $98 and closes at $104.

Candle 3: Bullish, opens at $104 and closes at $106.

👉 The Fair Value Gap is between $98 (Candle 1’s close) and $104 (Candle 3’s open). That’s the area where price may return to "fill the gap."

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🎯 How Traders Use FVGs

1. Entry Zones: Traders wait for price to return to the FVG to take a trade in the direction of the impulse.

2. Support/Resistance: FVGs can act like key zones where price reacts.

3. Liquidity Zones: Smart money often uses FVGs to grab liquidity before moving price again.

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✅ Bullish Fair Value Gap

Forms during a strong uptrend.

Price leaves a gap below.

Traders look for long entries when price revisits that gap.

❌ Bearish Fair Value Gap

Forms during a strong downtrend.

Price leaves a gap above.

Traders look for short entries when price revisits that gap.

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📌 Quick Tip:

FVGs are not guaranteed to fill immediately. Combine them with:

Market structure

Order blocks

Liquidity sweeps

Volume spikes