The Invisible Magnet: Trading the Fair Value Gap (FVG)
Price doesn't just move through the markets it leaves a legacy of order flow behind. At PFH Markets, we specialize in identifying the institutional 'footprints' that signal where the big money is moving. The Fair Value Gap (FVG) is perhaps the most vital of these signals, offering a clear window into where the market is inefficient and likely to return.
What is a Fair Value Gap?
An FVG occurs when the market moves so rapidly in one direction that it creates an imbalance. This usually appears on your chart as a large, impulsive candle where the "wicks" of the candles before and after it do not meet. This "gap" represents a zone where the market was inefficient, leaving behind unfilled orders.
The Magnet Effect
Market efficiency is a core principle we advocate at PFH Markets. Because the market dislikes these imbalances, price has a mathematical tendency to return to these gaps to "rebalance" the price action. Think of an FVG as a magnet; once the initial impulsive move exhausts itself, price often drifts back to fill that empty space before continuing the trend.
Understanding how to identify these zones can significantly improve your entry precision. As detailed in our FVG trading strategy, trading from these imbalances allows you to align yourself with institutional momentum rather than fighting against it.
How to Trade the FVG
Identify the Displacement: Look for a large, energetic candle that breaks market structure.
Locate the Gap: Find the space between the high of the first candle and the low of the third candle (in a bearish move, it's the reverse).
Wait for the Return: Do not chase the move. Set your limit orders within the top 50% of the gap (the "Consequent Encroachment").
Confirm and Execute: Watch for a rejection or a lower-timeframe shift once price enters the FVG.
Mastering Fair Value Gaps transforms you from a reactive trader into a proactive one. By recognizing where the market is "unfinished," you can anticipate moves before they happen. At PFH Markets, we provide the tools and high-speed execution needed to capitalize on these institutional imbalances in real-time.
