A fair value gap appears when the price moves sharply in one direction and skips over a range without meaningful trading activity. This usually happens during strong news events, sudden market reactions, or periods of low liquidity. Because the market didn’t trade normally through that range, the gap represents an “inefficient” area on the chart.
Traders monitor fair value gaps because markets often revisit these skipped price levels later. Returning to the gap can create potential setups for entries or exits, depending on the trader’s strategy. Fair value gaps are commonly used in technical analysis, especially in strategies focused on market structure and price efficiency.
Fair value gaps can appear on any timeframe — intraday, daily, or weekly. Higher-timeframe gaps usually carry more importance because they reflect stronger shifts in sentiment. While not guaranteed to fill, these areas often act as magnets for price as the market seeks balanced trading conditions.
Fair value gaps help traders understand where price moved too quickly and where future trading activity may occur. They can signal potential support, resistance, or areas where liquidity may still be untested.
They form when strong buying or selling pressure pushes price through a range faster than normal. This can happen during major news releases, sudden shifts in sentiment, or low-liquidity periods such as overnight sessions. Because few trades occur during the move, the chart shows a gap between candles. This untested area often becomes a point of interest for future price action.
No—although many gaps eventually get filled, there is no guarantee. Some gaps fill quickly, while others remain open for weeks or months if the trend is strong. Traders study volume, momentum, and market structure to decide how likely a gap is to attract price again. The timeframe of the gap also influences how important it is.
Traders use fair value gaps to identify possible entry zones, targets, or areas where price may slow down. Some strategies look for price to return to the gap before continuing its trend. Others use the gap as a sign of strong imbalance that might lead to a reversal. The key is understanding how price behaves around inefficient zones.
A currency pair spikes upward after a surprise interest rate announcement. On the chart, a clear fair value gap appears between two price levels where no normal trading occurred. Later in the week, the pair pulls back into that gap before continuing upward, giving traders a potential entry point.
