Fair Value Gap (FVG) — The Complete Strategy Guide for Indian Markets

Fair Value Gaps (FVGs) are one of the most reliable concepts in Smart Money trading. Once you understand them, you'll see them everywhere — on Nifty, Forex, Gold, and Crypto charts — and they'll become one of your highest-probability trade setups.

What Causes a Fair Value Gap?

FVGs are caused by institutional order flow. When a large institution places a massive buy or sell order, price moves rapidly through a range of prices, skipping over many potential transactions. This creates an imbalance — a zone where the market wasn't able to efficiently match buyers and sellers.

Think of it like a crowded market — if everyone suddenly rushes to one side, the other side is empty. Price will eventually return to fill that empty space.

How to Identify a Fair Value Gap

An FVG is identified using three consecutive candles:

• Bullish FVG: The high of candle 1 is below the low of candle 3, with candle 2 being a strong bullish candle. The gap between candle 1's high and candle 3's low is the FVG zone.
• Bearish FVG: The low of candle 1 is above the high of candle 3, with candle 2 being a strong bearish candle. The gap is the FVG zone.

Trading Strategies Using FVGs

Strategy 1: FVG + Order Block Confluence

The highest probability FVG trades occur when the FVG zone coincides with an Order Block. This confluence gives you two institutional reference points at the same zone — dramatically increasing the probability of a reaction.

Strategy 2: FVG Fill and Continue

When price is in a clear trend and pulls back into an FVG zone, it often fills the gap and then continues in the original direction. Enter when price reaches the 50% level of the FVG for the best risk-reward.

Strategy 3: FVG Rejection

Sometimes price approaches an FVG from the opposite side (a bearish FVG approached from below). If the higher timeframe bias is bearish, this is a high-probability short entry as price fails to close the gap and reverses.

FVGs on Nifty 50

Nifty 50 creates significant FVGs around major news events — RBI policy announcements, quarterly results, global market gaps at open. These overnight gap FVGs are particularly powerful because they represent large institutional imbalances created when Indian markets were closed.