What is FVG ?
A Fair Value Gap (FVG) is popular among price action traders and happens when the market is unbalanced—meaning there’s more buying than selling or vice versa. These gaps act like magnets, pulling the price back to fill the imbalance before continuing in the same direction.On a price chart, an FVG forms when three candles appear in a row. If the middle candle is much larger, and the high of the first candle and the low of the third candle don’t fully cover its range, the empty space between their wicks is called the Fair Value Gap.
Additionally, FVGs act as significant support and resistance zones. Traders use them to predict potential reversals, as institutions and algorithms often target these areas for entries. When the market reaches an FVG, it can trigger strong reactions, leading to trend reversals or consolidations before the next move.
We complete this topic
✔ Why market get revers from FVG ?
✔ Which FVG gonna work in a leg ?
✔ Psychology of FVG.
✔ Consequent Encroachment.
✔ FVG start momentum
✔ FVG fill
✔ BISI
✔ SIBI
✔ Inversion
Why Does the Market Reverse from FVG ?
Fair Value Gaps (FVGs) are created when price moves aggressively in one direction, leaving a liquidity void between two candles. These gaps attract institutional traders and smart money, as they represent inefficiencies in price action. When the market revisits an FVG, it often reverses due to order flow balancing, where pending buy or sell orders get executed. This results in price retracing to fill the imbalance before continuing in the prevailing direction.Additionally, FVGs act as significant support and resistance zones. Traders use them to predict potential reversals, as institutions and algorithms often target these areas for entries. When the market reaches an FVG, it can trigger strong reactions, leading to trend reversals or consolidations before the next move.
Which FVG Will Work in a Leg?
Not all FVGs hold the same significance in a price leg. The most effective ones usually appear at key market structure points, such as swing highs or lows, and near liquidity pools. High-probability FVGs align with strong momentum and institutional order flow, making them more likely to induce a market reaction.Traders assess the strength of an FVG based on volume, time frame, and confluence with other technical indicators. Higher time frame FVGs (e.g., daily or 4-hour) tend to be more reliable compared to lower time frames. Additionally, FVGs formed during major trading sessions like London or New York carry greater weight due to institutional participation.
Psychology of FVG
The psychology behind FVGs is rooted in market inefficiencies and liquidity dynamics. When price moves rapidly, it leaves gaps where institutional traders haven't had the chance to fully participate. As a result, price tends to revisit these areas to rebalance supply and demand.
From a retail trader's perspective, FVGs can create both opportunities and risks. While experienced traders capitalize on these imbalances, uninformed traders often fall victim to false breakouts and sudden reversals. Understanding the psychology of smart money can help traders make informed decisions and improve their edge in the market.Consequent Encroachment
Consequent Encroachment refers to the midpoint of an FVG, which acts as a key level for price reactions. When price retraces into an FVG, it often interacts with the 50% level before deciding whether to continue filling the gap or reverse.
This concept helps traders refine their entries and exits. If price respects the consequent encroachment, it signals that institutions are defending their positions. On the other hand, a full FVG fill indicates a shift in order flow, suggesting a potential trend change or continuation.
How FVGs Start Momentum
FVGs are often the starting point for strong market momentum. When institutions enter large orders, price moves aggressively, leaving an FVG behind. This imbalance indicates that smart money is controlling the market, leading to directional bias.Traders can use FVGs as confirmation zones for momentum-based strategies. If price fails to fill the FVG completely and resumes its trend, it validates the strength of the move. This insight helps traders align their positions with institutional flow, increasing their probability of success.
FVG Fill: Why and How It Happens
An FVG fill occurs when price retraces back into the imbalance to mitigate unfilled orders. The extent of the fill depends on liquidity conditions and market sentiment. Partial fills suggest strong institutional interest, while full fills may indicate trend exhaustion or reversal.
Traders often wait for FVG fills to enter trades with optimal risk-reward ratios. By combining FVG fills with key support/resistance levels and other indicators, traders can develop robust strategies to capitalize on market inefficiencies.
Traders often wait for FVG fills to enter trades with optimal risk-reward ratios. By combining FVG fills with key support/resistance levels and other indicators, traders can develop robust strategies to capitalize on market inefficiencies.
Buy-Side Imbalance and Sell-Side Inefficiency (BISI)
BISI refers to a market condition where buying pressure outweighs selling, creating an upward imbalance. This scenario occurs when aggressive buyers step in, leaving a gap in price action due to a lack of selling interest.
Traders can use BISI as a bullish signal, expecting price to retrace into the imbalance before resuming its uptrend. Identifying BISI zones on higher time frames enhances trade accuracy, as these imbalances often align with institutional order flow.
Sell-Side Imbalance and Buy-Side Inefficiency (SIBI)
SIBI is the opposite of BISI, where selling pressure dominates, leaving a gap due to insufficient buying. This results in price moving downward sharply, creating an imbalance that traders monitor for potential retracements.When price revisits an SIBI zone, traders look for bearish confirmations to enter short positions. These areas serve as strong resistance levels, particularly when aligned with other confluences like trendlines or key Fibonacci levels.
Inversion of FVGs
FVG inversions occur when a previously unfilled gap gets fully mitigated and later acts as a support or resistance level. This transformation happens due to shifts in market structure, where liquidity dynamics change over time.
For traders, recognizing inverted FVGs is crucial for adapting to evolving market conditions. These zones often provide high-probability trade setups, as price tends to respect them after mitigation, leading to trend continuation or reversal.
For traders, recognizing inverted FVGs is crucial for adapting to evolving market conditions. These zones often provide high-probability trade setups, as price tends to respect them after mitigation, leading to trend continuation or reversal.
