Fair Value Gaps Explained: How to Trade Price Imbalances

A Fair Value Gap (FVG) is a three-candle price pattern that reveals an imbalance created when institutions move price so rapidly that not all buy and sell orders are matched. The result is a price void — an area the market will often revisit to "fill" the gap before continuing its trend.

If you've ever watched price reverse from what appeared to be thin air, only to then continue in the original direction, you've witnessed an FVG being filled. This guide demystifies the mechanics and gives you a systematic approach to trading them.

The Anatomy of a Fair Value Gap

An FVG forms across three consecutive candles:

• Candle 1: The base candle.
• Candle 2: A large, impulsive candle that moves aggressively.
• Candle 3: A candle that does NOT overlap with the high of Candle 1 (bullish FVG) or the low of Candle 1 (bearish FVG).

The gap is the space between Candle 1's high and Candle 3's low (bullish) or Candle 1's low and Candle 3's high (bearish). This zone is considered "inefficient" — price left it too quickly.

Why Does Price Return to Fill FVGs?

Institutions operate with enormous position sizes. When price moves through an area without matching orders, those unfilled orders remain as pending limits. When price returns, those orders get matched — which is what creates the "fill." Understanding this means you can anticipate reversals that look random to everyone else.

Bullish vs. Bearish FVGs

• Bullish FVG: Forms during a downward impulse. Price may return from below to fill it before bouncing down again (continuation) or reversing up.
• Bearish FVG: Forms during an upward impulse. Acts as resistance when price returns from above.

Using ZorFX Economic Calendar to Avoid FVG Traps

One of the biggest reasons FVG trades fail is news events. A major central bank announcement can obliterate a perfectly valid FVG setup. Before entering any FVG trade, check ZorFX's Economic Calendar for high-impact events in the next 4 hours. If there's a red-flag event near your entry time, wait for it to pass.

The FVG Trading Framework

• 1. Identify the higher-timeframe trend on the daily or 4H chart.
• 2. Mark FVGs that form in the direction of the trend.
• 3. Wait for price to retrace into the FVG zone.
• 4. Look for a lower-timeframe (15M) confirmation candle — a reversal wicked away from the gap.
• 5. Enter on the close of the confirmation candle.
• 6. Stop loss: beyond the far edge of the FVG.
• 7. Target: the swing high/low from which the FVG was created.

FVG vs. Order Block — Which to Prioritise?

When an FVG and an Order Block overlap, the zone becomes extremely high-probability. Institutional order flow created both signals in the same area. This confluence is your highest-probability setup. If you are forced to choose one, prioritise the Order Block — but always note when both align.

Conclusion

Fair Value Gaps are not mystical. They are logical, institutional-driven price phenomena. By integrating them with the ZorFX Economic Calendar and Currency Strength Meter, you move from reactive guessing to proactive, data-driven trading. Patience and discipline in waiting for price to return to these zones is what separates profitable FVG traders from the rest.