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Fair Value Gap

A Fair value gap occurs during an imbalance between the buyers and sellers in the market. When there is a difference between the closing price of an asset in one period and the opening price for the next period. <br>

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Fair Value Gap

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  1. Fair Value Gap: FVG Trading Strategy & Fair Market Value Guide Trading is full of concepts and technicalities that help you in identifying potential opportunities. One such powerful concept is the fair value gap, a crucial technical analysis tool that enhances your trading strategy by identifying price inefficiencies. Wait, you haven’t heard of fair value gap or FVG trading? Well, not to worry. In Beirman Capital’s blog, we will discuss the fair value gap indicator, how to identify and trade it, along with its pros and cons. With this strategy, you can even use it to make money in the market by understanding what is fair value gap and its implications. What is a Fair Value Gap? A fair value gap occurs during an imbalance between buyers and sellers in the market. It represents a price gap between the closing price of one period and the opening price of the next period. Essentially, it's an area where the fair price is skipped over due to sudden market shifts. You can imagine a fair value gap as a missing piece in a puzzle. Traders looking at price action will identify these gaps where a candle appears to be missing, helping them uncover upcoming trading opportunities. Types of Fair Value Gaps

  2. Bullish Fair Value Gap A bullish fair value gap occurs during a strong upward move and consists of three candles. It is the price range between the high of the first candle and the low of the third candle. Bearish Fair Value Gap A bearish fair value gap forms during aggressive downward price action. It is also a three-candle formation, defined by the price range between the low of the first candle and the high of the third candle. What Causes a Fair Value Gap? ● News or Economic Releases: Major events like NFP data, FED announcements, or global economic indicators often trigger fair value gaps. ● Market Sentiment: Shifts in mood among traders can lead to sudden price swings and gaps. ● Big Players Activities: Actions by institutional traders or fair value accounting adjustments can create price dislocations. ● High Volatility: Volatile conditions often result in fair value gaps. ● Supply and Demand Dynamics: An imbalance in demand vs supply can lead to fair value inefficiencies. How to Trade the Fair Value Gap Step 1: Spot the Fair Value Gap Look for the three-candle structure. The FVG becomes visible when the first and third candles do not overlap. Use tools like the FVG indicator or fair value gap scanner to ease this process. Step 2: Wait for Price Revert Prices usually revert to fill the fair value gap before continuing the trend. This is a signal for potential entry. Step 3: Plot Technical Indicators Combine the fair value gap trading strategy with tools like RSI, Bollinger Bands, or moving averages to confirm your analysis. Step 4: Place Your Trades ● In a bullish FVG, enter a buy when the price revisits the gap. ● In a bearish FVG, consider selling as price revisits the gap.

  3. Pros of Fair Value Gap Trading ● Diverse Market Applicability: You can apply FVG trading in forex, stocks, crypto, indices—virtually any market. ● Track Institutional Traders' Activities: Fair value gaps often reflect actions of big players, a core element in smart money concepts. ● Low Risk Trading: Since fair value gap trading focuses on price inefficiencies, it often reduces risk exposure. ● Enhanced Trade Decisions: When combined with indicators, FVG trading helps pinpoint exact entries and exits. Cons of Fair Value Gap Trading ● Not a Guarantee to Success: Despite its effectiveness, FVG trading doesn’t promise price will always revert to the gap. ● Limited Opportunities: Fair value gaps usually appear during volatile events, so you’ll have fewer trading chances. ● High Volatility and Choppy Market Conditions: These environments cause fair market value shifts, making the market unpredictable. Final Words Fair value gap trading is a robust strategy, ideal for traders looking to profit from market inefficiencies. It offers high reward potential at relatively lower risk. However, proper knowledge and consistent practice are necessary for success. Want to Start FVG Trading? Open an account with Beirman Capital and trade a variety of instruments using proven strategies like FVG trading, smart money concepts, and more. FAQ What is a fair value gap? A fair value gap is a technical pattern that shows price imbalance due to sudden market activity. How to trade fair value gaps? Look for the gap, wait for the price to revert, then enter the trade in the direction of the trend. What is a price gap in forex?

  4. A price gap in forex appears when the market opens at a price significantly different from the prior closing price. What is the best indicator for fair value gaps? The fair value gap scanner or FVG indicator are best suited for identifying these setups.

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