Exposing Price Inefficiencies: The Role of Fair Value Gaps (FVG)In the ever-evolving landscape of price action trading, one concept has gained significant traction among institutional and retail traders alike: Fair Value Gaps (FVGs) . At Xuantify, we believe that understanding market inefficiencies is key to anticipating high-probability setups—and FVGs offer just that.
🔍 What Is a Fair Value Gap?
A Fair Value Gap is a price imbalance that occurs when the market moves too quickly in one direction, leaving behind a "gap" in liquidity. This typically happens during high volatility or news-driven events, where price skips over levels without sufficient buying or selling.
In technical terms, an FVG is identified when a candle’s low (in a bullish move) or high (in a bearish move) does not overlap with the previous or next candle. This creates a three-candle structure :
- Bullish FVG : Candle 1 (bearish), Candle 2 (strong bullish), Candle 3 (bullish or neutral)
- Bearish FVG : Candle 1 (bullish), Candle 2 (strong bearish), Candle 3 (bearish or neutral)
These gaps often act as magnets for price , as the market seeks to rebalance and fill the inefficiency.
🧠 Why Do FVGs Matter?
FVGs are not just visual anomalies—they represent institutional footprints . When large orders are executed, they often cause price to move rapidly, leaving behind unfilled orders. Smart money tends to revisit these zones to complete their positions.
Key Benefits of Trading FVGs:
- ✅ High-probability entries: Price often returns to fill the gap before continuing its trend.
- ✅ Clear invalidation levels: The edges of the gap provide natural stop-loss zones.
- ✅ Works across timeframes: From scalping on the 1-minute to swing trading on the daily.
🧩 Using the “Fair Value Gap ” Indicator
To simplify the process of identifying and trading FVGs, we recommend the Fair Value Gap indicator on TradingView. This tool automatically highlights bullish and bearish FVGs, tracks their mitigation, and even provides alerts when gaps are filled.
Key Features:
- Auto-detection of bullish and bearish FVGs
- Mitigation tracking: See which gaps are filled and which remain open
- Threshold filtering: Focus on significant gaps by adjusting the minimum size
- Dynamic mode: Monitor evolving FVGs in real time
- Alerts: Get notified when price fills a gap
💡 No Repainting, No Delays
One of the most reassuring aspects of this indicator is that it does not repaint . Once a fair value gap is printed, it stays on the chart—no disappearing zones, no misleading signals.
Even better, the indicator plots FVGs in real time . It uses a three-candle structure and confirms the gap immediately after the third candle closes . This means you’re seeing valid, actionable gaps as they form—not in hindsight.
This makes the LuxAlgo FVG tool a reliable companion for both live trading and backtesting , giving traders the confidence that what they see is what the market actually delivered.
How to Use It:
1. Add the indicator : Search for “Fair Value Gap ” in the TradingView Indicators tab.
2. Adjust settings :
- Use the “Threshold %” to filter out smaller, less relevant gaps.
- Enable “Mitigation Levels” to track filled gaps.
- Use “Auto Threshold” for adaptive filtering based on volatility.
3. Trade setups :
- Contrarian : Wait for price to fill a gap and look for reversal signals.
- Trend-following : Enter trades in the direction of the gap when it forms.
⚠️ FVGs Are Not Always Honored
While FVGs offer powerful insight into market inefficiencies, it's important to remember: they are not guaranteed reversal or continuation zones . Sometimes price will blow right through a gap without reacting—especially in trending or news-driven markets.
Why this happens:
The gap may have already been mitigated on a lower timeframe
Strong momentum or macroeconomic catalysts override technical zones
The FVG is too small or lacks confluence with other key levels
How to manage this:
Always combine FVGs with structure, liquidity, and volume
Use alerts and confirmations (e.g., candle patterns or BOS/CHOCH)
Avoid trading FVGs in isolation—context is everything
🧠 Best Indicator Combinations with FVG
To increase the accuracy of FVG-based setups, we recommend combining the LuxAlgo FVG indicator with the following tools:
1. Market Structure (LuxAlgo Smart Money Concepts)
Identify breaks of structure (BOS) or change of character (CHOCH) near FVGs. Use structure shifts to confirm whether the FVG is likely to hold or fail.
2. Volume Profile or Session Volume
Confirm FVGs with low-volume nodes or volume gaps . FVGs aligning with volume imbalances are more likely to be respected.
3. Order Blocks
Look for FVGs that overlap with bullish or bearish order blocks . This confluence often signals institutional accumulation or distribution.
4. Relative Strength Index (RSI) or Stochastic
Use momentum indicators to confirm exhaustion or continuation near FVGs. For example, a bullish FVG + oversold RSI = potential long setup.
5. Liquidity Zones (Equal Highs/Lows, Swing Points)
FVGs near liquidity pools are often targeted before reversal. Combine with sweep setups for sniper entries.
Here’s a new section you can add to your blog post, focusing on the power of **Multi-Timeframe (MTF) FVG Alignments**:
🧭 Multi-Timeframe FVG Alignments
One of the most powerful ways to increase the reliability of Fair Value Gaps is by using multi-timeframe confluence . When FVGs align across different timeframes—say, a 1H FVG inside a 4H FVG zone—it often signals a high-probability reaction area .
Why it works:
Higher timeframe FVGs represent broader institutional imbalances
Lower timeframe FVGs offer precise entries within those zones
Alignment confirms that multiple layers of market participants are active in the same area
How to use it:
Start with a higher timeframe (e.g., 4H or Daily) and mark key FVGs
Drop to a lower timeframe (e.g., 15M or 1H) and look for fresh FVGs forming inside the higher zone
Wait for structure shifts or liquidity sweeps within the lower timeframe FVG before entering
This technique is especially effective when combined with tools like LuxAlgo Smart Money Concepts and Volume Profile , helping you time entries with sniper-like precision while staying aligned with the broader market narrative.
📊 Backtest It Yourself
FVGs are best understood through chart time . Load up your favorite pair on TradingView, activate the LuxAlgo FVG indicator, and observe how price reacts. You’ll be surprised how often these zones act as support, resistance, or launchpads for major moves.
🚀 Final Thoughts
Fair Value Gaps are more than just a buzzword—they’re a window into how smart money operates. By incorporating FVGs and tools like the LuxAlgo indicator , you gain a deeper understanding of market dynamics and a sharper edge in execution.
At Xuantify, we’re committed to decoding institutional logic and bringing it to the retail trader. Stay tuned for more insights, and as always— trade smart, not hard .
