What is FVG / Imbalance (Fair Value Gap)? Meaning and Importance in India

A Fair Value Gap (FVG), also called an imbalance, is a three-candle pattern where the middle candle is so impulsive that the first candle's wick and the third candle's wick never overlap. The untouched pocket between them is the gap. It marks prices where one side traded almost unopposed.

Suppose Nestle India prints a normal candle, then a giant green candle, then another up candle, leaving a gap between candle one's high of ₹2,210 and candle three's low of ₹2,260. That ₹50 pocket saw practically no two-way trade. Markets often return to such pockets later.

Why do markets revisit fair value gaps?

An imbalance means price moved so fast that resting orders in that zone never executed: limit buyers were skipped, and two-way price discovery did not occur. Unfilled interest remains there, and algorithmic flows reference such zones explicitly. The market's tendency to rebalance draws price back to trade through the pocket before the larger move continues.

How do traders use FVGs?

In trends, the gap left by an impulse becomes a pullback target: traders set entries inside the FVG, expecting the rebalance to end there and the trend to resume, with stops beyond the gap's far edge. Gaps aligned with order blocks or structure breaks carry the most weight. A gap that price slices through entirely loses its meaning and often signals the impulse has failed.

Concepts like fair value gaps become easier with practice. Start with small positions in equity delivery, and read more chart lessons in the Knowledge Center before scaling up.

Technical analysis involves interpretation. The same chart can be read differently by different traders. Always combine multiple tools and manage risk before acting on any signal.

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