Fair Value Gap Explained by Peni2DollarzFx: 1DAnalysis, 4H Execution

A Fair Value Gap (FVG) is a small “vacuum” in price created when the market moves so

quickly that it skips trading at certain prices. That skipped area is an imbalance; price often

revisits it later to “rebalance” before continuing.

Why it matters: FVGs are high-quality entry zones because they frequently act like magnets

for price and sit right where liquidity was left behind (great spots to get in with tighter stops

and clearer invalidation).

2) Precise definition

Formal definition. A Fair Value Gap (FVG) is the price range between the wick high of

Candle 1 and the wick low of Candle 3 (bullish case), or between the wick low of Candle 1

and the wick high of Candle 3 (bearish case), when those two wicks do not overlap in a

three-candle sequence—leaving an untraded slice of price on Candle 2.

Plain English / trader language. Think of an FVG as a skip in the tape during a fast move.

Big players pushed price so hard that no one transacted in that strip. Markets like to “fill the

imbalance,” so when price returns to that strip, it often reacts (a pullback entry in an uptrend

or a pop-and-fade in a downtrend).

3) How an FVG forms (step-by-step)

Bullish FVG (buy-side pullback zone)

Sequence = C1 – C2 – C3 on an upswing.

1. 2. 3. 4. C1 prints (could be red or green).

C2 is an impulsive up candle (large body).

C3 follows; its low is above C1’s high → there’s a gap of prices that never traded.

The FVG zone = from C1 high up to C3 low.

Bearish FVG (sell-side pop-and-fade zone)

1. C1 prints.

2. 3. 4. C2 is an impulsive down candle.

C3 follows; its high is below C1’s low → gap remains untraded.

The FVG zone = from C3 high up to C1 low. TradingView

4) What an FVG means (market microstructure

interpretation)

• Why imbalance exists. A block of aggressive orders (often institutional) blasts

through the book, leaving thin or zero prints across a short price span. That’s the

inefficient delivery that the market later “repairs.” TradingView+1

• Behavior around FVGs.

o Price frequently revisits the gap to mitigate/complete trades.

o The gap often acts like support (bullish FVG) or resistance (bearish FVG) on

the retest.

o Confluence with structure (swing highs/lows, order blocks) improves reaction

probability. TradingView

a). Example (1D analysis → 4H execution, bullish continuation)

• 1D bias: Uptrend on EURUSD (higher highs/higher lows). A strong 1D up leg prints

a bullish FVG from 1.0842–1.0848.

• Plan on 4H: When price pulls back into 1.0842–1.0848:

o Entry: Limit 1.0846 (middle of gap).

o Stop: 1.0838 (below gap & 4H swing).

o Targets: 1.0862 (first liquidity = prior 4H high, ≈2R), 1.0880 (second

liquidity = last 1D swing high, ≈4R).

o Why this works: With the 1D trend, fresh gap + prior liquidity sweep → the

FVG often acts as support for continuation. b). Example (1D analysis → 4H execution, bearish reversal-from-level)

• 1D bias: Market at 1D supply after sweeping a prior major high; a sharp drop leaves

a bearish FVG at 17,905–17,925 on a US100 chart.

• Plan on 4H: On a pop back into 17,905–17,925:

o Entry: Limit 17,918 (upper third of gap).

o Stop: 17,936 (above gap & sweep high).

o Targets: 17,882 (recent 4H low/ORL, ≈2R), 17,846 (deeper 1D liquidity,

≈4R).

o Why this works: Gap forms at 1D supply after a sweep with strong

downside displacement → FVG often acts as resistance for a turn.

This content is educational only from Peni2DollarzFx—not financial advice.

If you want to go deeper, join our community, trade with us, or apply for 1:1 mentorship for

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