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What a fair value gap is

Fair Value Gaps

A gap price never properly traded

A fair value gap is a three-candle imbalance where the market moved so fast that one side left no real two-way trade behind at those prices. It shows up as a gap between candle 1 and candle 3 that candle 2 blasted straight through.

Not the same as a normal price gap

A weekend or earnings gap is a blank space with zero trading in between. An FVG is different: three consecutive candles where the middle one is so big it leaves candle 1's wick and candle 3's wick not touching.

Why traders treat it as a magnet

Institutions view these gaps as inefficient pricing. Price often returns to rebalance that zone before continuing, which is exactly why traders treat FVGs as magnets and potential entries.

Check yourself

An FVG is functionally best described as…

  1. A gap left behind by a strong, one-sided move correct
  2. A weekend gap between Friday's close and Monday's open
  3. A gap caused by a stock split

The defining feature is imbalance from an aggressive move, not a calendar gap or a corporate action.

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