Understanding and identifying market imbalances can be a valuable skill for traders. One such phenomenon that reveals these imbalances is the fair value gap (FVG). Fair value gaps are often overlooked by many and is unfortunate since they are a footprint of institutional orderflow that traders can use to their advantage. FVGs stand as a crucial component in the strategies of numerous smart money traders, making it essential to have them automatically displayed on your charts for optimal performance.

Here is The Inner Circle Trader’s definition of a fair value gap.

A Fair Value Gap (FVG) in trading refers to a specific price range where one side of the market liquidity is available, typically confirmed by a liquidity void on lower time frame charts within the same price range. This phenomenon can create a trading vacuum, potentially resulting in an actual price gap. In Inner Circle Trader's teachings, FVGs serve as a tool to identify areas where price is expected to revisit, seeking fair value before resuming its regular trading pattern.

Source: https://www.youtube.com/watch?v=FgacYSN9QEo

A Fair Value Gap is a three candlestick or bar pattern and there are 2 types of Fair Value Gaps.

1. Buyside Imbalance Sellside Inefficiency (BISI)

This is a bullish Fair Value Gap because the buyside liquidity was offered and sellside liquidity was not, making it inefficient. In effect, the imbalance of more buying vs selling creates the Fair Value Gap.

As you can see on the chart the first candle’s high does not overlap with the third candle’s low. Thus, creating a gap between the first and third candles.

2. Sellside Imbalance Buyside Inefficiency (SIBI)

This is a bearish Fair Value Gap because the sellside liquidity was offered and buyside liquidity was not, making it inefficient. In effect, the imbalance of more selling vs buying creates the Fair Value Gap.

As you can see on the chart the first candle’s low does not overlap with the 3rd candle’s high. Thus, creating a gap between the first and third candles.

You may also notice that there is a dash middle line plotted inside the Fair Value Gaps. Those are the midpoint or consequent encroachment of the Fair Value Gap. When price revisits these areas it can give the trader insight on whether the price is retracing back into the Fair Value Gap to continue in its current trajectory or will price disrespect the consequent encroachment and begin a reversal.

Features:

1. FVGs can be used as a trade entry zone. You can utilize the Fair Value Gap as an area of liquidity that can offer you potential entry point for trades.

2. FVGs can be extended to be used as support/resistance areas. There is a setting in FVG Pro that when enabled the FVGs will extend to the far right of the chart.

3. Filled Setting: Customize how filled FVGs will display and also select the Imbalance fill type.

Imbalance Fill Type:

i) Breakout: Price has filled and closed out the FVG. (Default and Preferred Method)

ii) Touch_Midline: The mid-line of the FVG has been closed out.

iii) Any_Touch: Any part of the FVG that price has closed within.

4. Initial Imbalance option: The Initial Imbalance is an option we added where you can differentiate the first Fair Value Gap that occurs after your indicated start time.

5. Customize Mid-line Style

6. Custom length and # of look back bars.

If you do not select to extend the imbalance, then the tool will extend the FVG by a specified number of bars to the right. Also, you can input the # of bars the tool will look back to display any FVGs within that range.

7. Multiple Time Frame Analysis: Ability to display higher time frame FVGs on your current chart.  Allowing the trader to see FVG confluences for multiple time frames on one chart.