Understanding Fair Value Gaps in Trading

I used to think all fair value gaps were great trading opportunities until I

realized most of them actually cost me money.

Let's start with the basics. A fair value gap is a three-candle

pattern. The second candle creates a gap by

expanding price, leaving a

space between the first and third candle. Sounds easy, right?

But here's the twist. Not all gaps are created equal, and many of them are

low-probability traps. The key to finding high-probability fair

value gaps

lies in the third candle of the formation.

There are three types you need to know about. Continuation candle.

If the third candle is a strong continuation candle, price

is unlikely to return to

that gap, and if it does, it often fails to hold.

This kind of fair value gap is tricky.

So if you spot it, switch to lower timeframes to find a

better entry.

The second type is reversal candle.

This happens when the third candle has a long wick against the fair value gap,

making the gap small. When this happens, the fair value gap is likely to get

traded through. To consider it, look for confluence with other factors,

like

an order block. Now, the third type is consolidation candle.

This is where the real magic happens.

If the third candle is a consolidation candle, small body,

small

wicks, and closing within its own range, this signals a

high-probability fair value gap.

Price is likely to dip into this gap and then expand, giving you a prime

opportunity. Wanna learn more? Join my free Telegram channel.

Link is in my bio.