Summary of "Path to Profitability: Fair Value Gaps Explained"

Fair Value Gaps Explained

A fair value gap (FVG) is an imbalance in price where there are insufficient buy or sell orders inside a price range.

What an FVG is

Typically appears as a three-candle pattern:
- An initial candle.
- A strong, expansionary middle candle that creates the imbalance.
- A third candle that leaves a gap between the first candle’s wick and the third candle’s wick.
Bullish FVG: gap between the top wick of the 1st candle and the bottom wick of the 3rd candle (signals a lack of sell orders).
Bearish FVG: gap between the bottom wick of the 1st candle and the top wick of the 3rd candle (signals a lack of buy orders).
Candle color for the 1st and 3rd candles does not matter; the middle candle is the one that shows the swift imbalance.

Why FVGs matter

FVGs mark price ranges where orders were not filled (an imbalance). When price returns to that range it often moves decisively in the original direction — providing continuation confluence.
Use FVGs as one confluence among others (structure, liquidity, order flow). Do not trade FVGs in isolation.

Invalidation / “disrespect”

An FVG is disrespected (invalidated) when a candle closes through the gap (for example, a bullish close above a bearish FVG).
Invalidation often signals the trend could be changing or that the FVG is no longer useful.

Stacked FVGs and practical rules

Multiple FVGs can stack; if they stack without retracement between them, they remain valid until price balances that stacked range.
If price fills the stacked range and then pushes beyond a higher-high or lower-low, treat the entire imbalanced range as balanced and remove those FVGs — don’t keep old, irrelevant FVGs on the chart.
A single stacked FVG can be invalidated while lower ones remain valid; always consider the larger imbalanced range and recent structure.

Common pitfalls

Treating overlapping wicks as an FVG (overlapping wicks indicate there wasn’t an imbalance).
Taking trades solely off a single FVG without additional confluences or confirmation (structure break, liquidity sweeps, order flow).
Leaving already-balanced or used FVGs on the chart and trading them later incorrectly.

Practical examples covered (brief)

Bullish FVG in an uptrend acting as a retracement area that pushes price higher.
Bearish FVG in a downtrend reinforcing continuation after a break of structure.
FVGs that get disrespected by a candle close through the gap (invalidating the FVG).
Stacked bullish/bearish FVGs that are filled sequentially or removed once the imbalance is fully balanced and price continues.

Takeaway

FVGs are a structural, order-flow–based concept marking areas lacking orders and thus areas where price can move quickly when revisited. Use them as part of a broader confluence framework, monitor for invalidation (a close through the gap), and remove obsolete FVGs after the imbalance has been balanced.