Trading track · Lesson 11 of 13
Fair Value Gaps Explained
Another core smart-money idea, made simple. What a fair value gap is, why price keeps coming back to it, and how to use it.
A fair value gap (FVG), also called an imbalance, is one of the most useful concepts once you can read a chart. The idea: when price moves too fast in one direction, it leaves a gap behind, and the market often comes back to "fill" it before carrying on.
What a fair value gap is
In a normal, orderly market, buying and selling happen at every price. But in a fast, one-sided move, price skips ahead so quickly that a zone gets left with lopsided activity, an imbalance. That zone is the fair value gap. Markets tend to dislike these inefficiencies, so price frequently returns to trade through the gap before resuming, the "fill".
Why it matters
A fair value gap gives you two useful things: a magnet, a zone price is often drawn back to, and a reaction area, a level where the move may resume once the gap is filled. That makes unfilled gaps natural places to watch for entries or targets, especially when they line up with the trend.
Gaps and order blocks together
Fair value gaps and order blocks are cousins, and they often appear side by side: the strong move that creates an order block is usually the same move that leaves a gap. When a gap sits inside or beside a quality order block, that overlap is some of the strongest confluence on the chart. Marking only the still-active gaps by hand is tedious, which is why degencoder's FVG indicator draws only the unfilled ones and projects them across timeframes.
How to use it well
Watch unfilled gaps as locations, not signals. A gap in the direction of the trend is a sensible place to look for a continuation entry once price returns; a gap acting as a target gives you somewhere logical to take profit. As always, pair it with structure, a confirmation trigger, a defined invalidation and proper position sizing.
Key takeaways
- A fair value gap is an imbalance left by a fast move that price often returns to fill.
- Unfilled gaps act as both magnets and reaction zones, useful for entries and targets.
- Gaps overlapping an order block are strong confluence, use them as locations, not standalone signals.
Frequently asked questions
What is a fair value gap?
A fair value gap, or imbalance, is a zone left behind by a fast price move where buying and selling were lopsided. Price often returns to 'fill' that gap before continuing, which makes the zone a useful area to watch.
What is the difference between a fair value gap and an order block?
An order block is where large orders likely sat before a move; a fair value gap is the imbalance the move leaves behind. They often appear together, and overlapping zones tend to be the most significant.
Do fair value gaps always get filled?
No. Many do, which is why they are useful, but not all, and not on a fixed schedule. Treat a gap as a location where price may react, not a guarantee that it will return.
Put the theory to work.
The Degen Desk applies all of this to live markets, three times a week. Free.
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