FVG Forex: What is it? Trading strategies for beginners interested in entering the market

One of the countless obstacles that forex traders face is trying to identify entry points during volatile and rapid price movements. The FVG forex technique plays a role in solving this challenge in a real way. In this article, we will delve into the reality of FVG forex and reveal many interesting strategies that can be leveraged.

Basic Knowledge: What Is Fair Value Gap Really?

Fair Value Gap, often abbreviated as FVG forex, is a price gap that appears on the forex chart. This gap occurs when the price moves quickly and powerfully, often seen at market open or close, or during low liquidity periods. The result is the price jumps over a certain range without any trading happening in that zone.

Many traders see the FVG forex as a magnet that attracts the price back. This means the price often revisits and fills the gap. This presents an opportunity for profit, especially for traders looking for gaps between fair value and current price, helping them spot potential reversal points. This is why traders use the FVG forex technique to predict future price movements.

Underlying Structure: What Are the Components of FVG Forex?

Understanding how FVG forex occurs is crucial. Its structure consists of three candlesticks moving in the same direction. When the price moves in one direction over a short period, a gap forms between the wick of the first candle and the wick of the third candle.

Pay special attention to the second candle, called the Imbalance or Disbalance. This candle signals that an FVG is forming. This imbalance indicates that the market is dominated by buying or selling in one direction, creating a clear price level difference.

As more traders place buy or sell orders in the same direction over a short period, the gap appears. This imbalance acts like a magnet, pulling the price back. The price tends to return and fill this gap to restore market balance.

Important Points: Strengths and Limitations of FVG Forex

Why Traders Favor FVG Forex

Increased Profit Opportunities — Since FVG forex acts as a magnet, traders get clear entry points and can profit from price movements.

Applicable Across All Timeframes — Whether trading on minutes, hours, or daily charts, FVG forex can be identified. This provides high flexibility for traders.

Easy to Learn — The concept of FVG forex is simple, making it quick for beginners to grasp.

Works with Various Instruments — You can apply FVG forex to stocks, commodities, cryptocurrencies, and more.

Cautions When Using FVG Forex

Signals Are Not Perfect — Sometimes, the price may not return to fill the gap. This means FVG forex is not a 100% effective tool.

Requires Additional Tools — It’s advisable to combine FVG forex with other indicators or analysis methods to improve accuracy.

Risks Involved — Like all trading techniques, FVG forex carries risks. Traders must understand and manage these risks carefully.

When Does FVG Forex Actually Occur? Key Factors Driving It

Unexpected News

When sudden news hits the market, traders’ sentiments can change abruptly. Many start buying or selling simultaneously, causing rapid price spikes or drops. This results in a price gap on the chart.

Major Economic Data

Releases such as interest rates, unemployment figures, or price indices often surprise the market. When this data deviates significantly from expectations, the price moves swiftly, creating gaps.

Large-Scale Trading by Major Players

When banks or large funds buy or sell huge volumes, their trades can significantly influence the price, leading to FVG formation.

Special Periods

Gaps often occur during market open or close, especially when liquidity is low. The price jumps over resistance or support levels.

Weekend Gaps

Most commonly, FVG forex occurs due to “jumping” prices between Friday close and Monday open, especially when news breaks during the weekend.

Clarification: Two Types of FVG Forex and How to Read Them

Type 1: Bearish Gap (Downward FVG)

When three consecutive red candles occur, with the second being an Imbalance, it signals a potential continuation of a downtrend. The price often retraces to the FVG zone before dropping sharply.

How to Read the Chart

1. The low of the first candle = top of the gap
2. The second candle shows the imbalance
3. The high of the third candle = bottom of the gap

Type 2: Bullish Gap (Upward FVG)

When three green candles occur consecutively, with the second as an Imbalance, it indicates a possible continuation of an uptrend. The price usually retraces to fill the gap before bouncing up quickly.

How to Read the Chart

1. The high of the first candle = bottom of the gap
2. The second candle shows the imbalance
3. The low of the third candle = top of the gap

How to Trade with FVG Forex: 3 Key Steps to Remember

Step 1: Determine the Trend First

Before applying FVG forex, understand the market direction. If the price makes higher lows, it’s an uptrend. If it makes lower highs and lower lows, it’s a downtrend. This forms the basis for your decision-making.

Sometimes, it’s helpful to look at higher timeframes like 4-hour, daily, or weekly charts for a clearer picture.

Step 2: Identify Support and Resistance Zones

Once you know the trend, find areas of interest:

• In an uptrend, look for support zones — areas with heavy buying, where the price might bounce back up.
• In a downtrend, look for resistance zones — areas with heavy selling, where the price might reverse downward.

Step 3: Set Stop Loss and Take Profit

Finally, manage your risk. When trading with FVG forex, set reasonable stop-loss levels. For buy trades from support zones, place stop-loss below that zone. Your profit target can be set at the next resistance level.

Advanced Techniques: 5 Tips for Trading FVG Forex That You Can’t Miss

1. Combine Multiple Indicators for Greater Confidence

Don’t rely solely on FVG forex. Use it alongside other indicators like Moving Averages, RSI, or MACD. Combining these tools provides a clearer picture and improves decision accuracy.

2. Always Use Stop Losses

This is a fundamental rule. Stop-losses protect your capital when the market moves against your position.

3. Wait for Confirmation

Before entering a trade, look for confirmation signals such as engulfing candles or breakouts. Don’t jump in immediately after spotting an FVG.

4. Be Patient with Timing

Timing is crucial. Wait for the right moment to enter — only when the price shows clear signs of reversal or continuation.

5. Pay Attention to Liquidity

Avoid trading FVG forex during low liquidity periods. Also, if the gap is near the previous day’s high or low, be cautious. Good liquidity makes it easier to enter and exit positions smoothly.

Summary of FVG Forex

The question “What is FVG forex?” can be answered as follows: it is a powerful analytical tool that helps traders see clearer opportunities in the forex market. A deep understanding of how FVG forex works, when it occurs, and how to use it properly can significantly elevate your trading skills.

However, remember that FVG forex is not a foolproof method. It should be used alongside other tools and with proper risk management. Continuous practice, whether with real money or a demo account (especially for beginners), will build your confidence and proficiency in using FVG forex effectively in the future.

Investing involves risks and may not be suitable for everyone. Always study and fully understand the risks before making decisions.