Fair Value Gap Explained
Written by
A Sign Of Time
Head of Education & Toodegrees Analyst
Key Summary
- Fair value gaps represent price imbalances.
- They occur during strong momentum moves.
- Markets sometimes revisit them later.
- Traders use them as retracement zones.
Description
A fair value gap is a price imbalance created when markets move rapidly in one direction. This leaves an area between candles where little trading occurred. Because the market did not fully transact within that zone, price sometimes returns to rebalance the imbalance.
Key Questions
A price imbalance formed when strong momentum leaves a gap in traded prices.
Markets often rebalance inefficiencies created during strong moves.
Traders monitor them as potential retracement zones.
Fair Value Gap Characteristics
| Characteristic | Explanation | Trading Use |
|---|---|---|
| Formation | Strong impulse move | Identify imbalance |
| Structure | Three-candle pattern | Entry zone |
| Behavior | Retracement | Continuation potential |
Price imbalance concepts are widely discussed in price-action trading research.
Frequently Asked Questions
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