How to Use Fair Value Gaps (FVGs) to Improve Your Crypto Trades

Cryptocurrency trading can feel overwhelming, especially when you’re just starting out. There are many terms, strategies, and tools to learn. One concept that can help you make better trading decisions is the Fair Value Gap (FVG). In this blog, we’ll break down what a Fair Value Gap is, how you can use it to trade cryptocurrencies, and how to find FVGs on your own. By the end, you’ll have a clear understanding of this powerful, yet simple, tool and how to apply it to your trading strategy. 

What is a Fair Value Gap (FVG)? 

A Fair Value Gap (FVG) is a price imbalance that occurs when the market moves so quickly in one direction that it leaves an untraded zone on the chart. This happens when there is a significant difference between the closing price of one candlestick and the opening price of the next, creating a visible gap.

In simple terms, an FVG represents a price level where little to no trading activity took place, meaning that the market did not establish a fair balance between buyers and sellers. These gaps often act as areas where the price may later return to “fill” the imbalance before continuing in its original direction.

FVGs are commonly used by traders to identify potential areas for price retracements, entries, or exits, making them a valuable tool in technical analysis.

Why Does a Fair Value Gap Happen?

FVGs occur because of sudden market movements, often driven by news, large buy/sell orders, or high volatility. For example:

• A positive news announcement might cause buyers to rush in, pushing the price up quickly.

• A large sell order might cause the price to drop rapidly, leaving a gap behind.

These gaps are important because they represent areas where the market might revisit to find balance between buyers and sellers. 

FVGs in Traditional Finance

Fair Value Gaps are not unique to crypto—they have been widely used in traditional financial markets, including stock and forex trading. In traditional finance, FVGs are often seen in the form of price gaps on stock charts, usually after earnings announcements, major economic news, or institutional trading activity. Traders in these markets use similar gap-filling strategies to identify potential trade opportunities, just as crypto traders do today. 

How to Use Fair Value Gaps in Crypto Trading

Now that you know what an FVG is, let’s talk about how you can use it to trade cryptocurrencies. Fair Value Gaps can be used in two main ways:

1. As a Support or Resistance Zone
2. As a Target for Price Movement 

1. FVG as a Support or Resistance Zone

When the price moves quickly and leaves a Fair Value Gap, that gap often acts as a support or resistance zone. Here’s how it works:

• Support Zone: If the price gaps up (moves higher quickly), the FVG below the current price can act as a support level. This means the price might drop back to this zone before continuing upward.

• Resistance Zone: If the price gaps down (moves lower quickly), the FVG above the current price can act as a resistance level. This means the price might rise back to this zone before continuing downward. 

2. FVG as a Target for Price Movement

Fair Value Gaps can also act as targets for where the price might go next. If the price leaves a gap, it often returns to “fill” that gap before continuing its trend. 

How to Trade Using Fair Value Gaps

Now that you understand how FVGs work, let’s talk about how to use them in your trading strategy. Here’s a step-by-step guide:

Step 1: Identify the Fair Value Gap

The first step is to find FVGs on the price chart. Look for areas where the price has moved quickly, leaving a gap between the candles. These gaps are usually easy to spot because they look like empty spaces on the chart.

Step 2: Determine the Direction of the Gap

Once you’ve identified an FVG, figure out whether it’s a bullish gap (price moved up quickly) or a bearish gap (price moved down quickly). This will help you decide how to trade it.

Step 3: Use the FVG as a Support or Resistance

• If it’s a bullish gap, wait for the price to drop back into the FVG zone. This could be a good opportunity to buy, as the price might bounce back up from the support level.
• If it’s a bearish gap, wait for the price to rise back into the FVG zone. This could be a good opportunity to sell, as the price might drop back down from the resistance level.

Step 4: Set Your Targets and Stop-Losses

Always use proper risk management when trading. Set a stop-loss below the FVG zone if you’re buying, or above the FVG zone if you’re selling. Your target can be the next key level of support or resistance, or you can aim for the price to fill the gap completely.

Step 5: Be Patient

FVGs don’t always get filled immediately. Sometimes, it takes time for the price to return to the gap. Be patient and wait for the right setup before entering a trade.

While Fair Value Gaps (FVGs) are a useful tool for identifying price imbalances and potential trade setups, they should not be used in isolation. No single indicator can guarantee profitable trades, so it’s important to combine FVGs with other technical analysis tools for better accuracy.

Some indicators that work well alongside FVGs include:

Relative Strength Index (RSI) – Indicates whether an asset is overbought or oversold, helping confirm whether the price will retrace to fill an FVG.

Moving Averages (MA) – Acts as dynamic support and resistance, providing additional confirmation for potential price movements.

Volume Profile – Highlights areas of high trading activity, which can help determine if an FVG will be filled or if the price will continue trending. 

By combining these indicators with FVGs, traders can make more informed decisions rather than relying on gaps alone. 

A Long-Term Perspective

If you are looking at crypto from a long-term investment perspective rather than short-term trading, focusing on fundamental analysis and a disciplined strategy is key. Understanding the technology behind a cryptocurrency, its real-world use cases, team, adoption rate, and market trends is essential.

One of the most effective long-term strategies is Dollar Cost Averaging (DCA)—investing a fixed amount in crypto at regular intervals regardless of price fluctuations. This removes the stress of timing the market and allows investors to accumulate assets over time, taking advantage of both market dips and rises.