1. What is Fair Value Gap (FVG) in trading?
Fair Value Gap (FVG) — an imbalance in price movement that occurs as a result of a sharp jump in liquidity, where one side (buyers or sellers) dominates the transaction. On a chart, this imbalance is displayed as "empty space" between consecutive candles. FVG is often used in trading to find entry and exit points, as price tends to return to these zones to "fill" the imbalance.
The idea of FVG is based on the concept of fair value: the market strives for balance, where supply and demand are balanced. When a strong movement occurs, this balance is disrupted, leaving a trace in the form of a gap on the chart.
2. How is Fair Value Gap formed?
Fair value gap is formed when one side (buyers or sellers) acts with strong dominance. This often happens during:
Release of news or macroeconomic data.
Sharp impulsive price movements.
Liquidations of large positions (especially in cryptocurrencies).
The FVG appears on the chart in the following cases:
1. The price moves so quickly that one side does not have time to offset the volumes of the other side.
2. The gap is visible between candles: the body of one candle does not overlap the "tail" or body of the previous candle.
3. Example on the chart: three consecutive candles — the bodies of the first and third do not overlap the wick of the middle one, leaving a gap.
3. How to identify fair value gaps?
To detect FVG, you need to closely monitor the chart:
Find three consecutive candles on the chart.
Compare the lower boundary of the body of the first candle with the upper boundary of the body of the third candle (or vice versa).
If there is a "void" between these levels — this is FVG.
Note:
FVG can be on both bullish and bearish sides.
This gap is most often visible on smaller timeframes (1H, 4H), but its significance increases on higher timeframes (1D, 1W).
4. Types of Fair Value Gaps
Bullish Fair Value Gap (Bullish FVG)
Forms when the market rises so quickly that buyers fill all the sellers' orders, leaving no room for balance.
Bearish Fair Value Gap (Bearish FVG)
Occurs when the market falls due to the dominance of sellers, leaving unfilled buy orders.
5. Bullish Fair Value Gap
Bullish FVG is a gap that occurs during a sharp price increase. On the chart, it is seen as an area between:
Low of the first candle.
High of the third candle.
6. Signs of bullish FVG:
Price rises impulsively.
Trading volume increases at the moment the gap forms.
After the FVG forms, the price may return to this area to "fill" the gap.
7. Bearish Fair Value Gap
Bearish FVG is a zone that forms during a sharp price decline, where sellers dominate. On the chart, it looks like an area between:
High of the first candle.
Low of the third candle.
8. Signs of bearish FVG:
Price falls impulsively.
Sales volume increases.
Often the price returns to the FVG zone before continuing to move down.
9. How to trade Fair Value Gap?
To use FVG in trading, follow these steps:
For bullish FVG:
1. Find the FVG zone after a sharp rise.
2. Wait for the price to return to the gap.
3. Enter a long position in the FVG zone, setting a stop-loss below the gap.
For bearish FVG:
1. Find the FVG zone after a sharp drop.
2. Wait for the price to return to this area.
3. Open a short position in the FVG zone, setting a stop-loss above the gap.
10. Fair Value Gap compared to other gaps in cryptocurrency markets
FVG differs from other gaps (for example, weekend gaps) in that it:
Forms within a single trading session.
Often found in low liquidity markets, such as cryptocurrencies.
Based on the imbalance of supply and demand.
11. Pros and cons of Fair Value Gap (FVG)
12. Advantages of FVG:
Simplicity of identification: FVG is easy to notice even for beginners.
High probability of price return: The market often seeks to fill gaps.
Flexibility of application: Suitable for different timeframes and assets.
13. Disadvantages of FVG:
Not guaranteed to fill: In some cases, the price does not return to the gap.
Risk of false signals: On lower timeframes, FVG may be irrelevant.
Dependence on other factors: FVG is better used together with other indicators, such as volumes or support/resistance levels.
Fair Value Gap is a useful tool for analysis and trading, especially in volatile markets. However, successful application requires understanding market conditions and using additional analysis methods.
P.S. Binance does not have a specific tool for automatically identifying Fair Value Gap (FVG) on the chart. However, traders can manually find and use FVG with graphic tools and indicators on the Binance platform.
How to work with FVG on Binance:
1. Manual analysis:
Open the chart of the desired cryptocurrency in Binance (through the "Trading" section).
Choose a timeframe (for example, 1H, 4H, or 1D).
Find areas where candles leave a "gap" between the body and the wicks of adjacent candles (according to FVG rules).
2. Using TradingView through Binance:
The Binance chart interface has an integrated TradingView platform where you can:
Draw FVG zones manually.
Use tools for analyzing levels.
3. Third-party indicators through TradingView:
If you want to automate the search for FVG, you can connect your Binance account to TradingView (or just use TradingView separately) and apply custom indicators. For example, such as:
"Fair Value Gap Finder". Imbalance indicators.
4. Binance API for automation:
If you use scripts or bots, you can implement the logic of FVG searching via Binance API. This requires programming knowledge (e.g., Python or JavaScript) and understanding how FVG works.
