How do you draw a fair value gap zone on the candlestick chart?

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Ali
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How do you draw a fair value gap zone on the candlestick chart?

Post by Ali »

A fair value gap acts as a space that the market wants to fill sooner to maintain balance. So, a fair value gap zone is the region that remains valid until price fills that region.
So, to draw an FVG zone on the candlestick chart so you can use it for trade analysis, you will have to follow a few steps:
  • Identify the large candlestick that created a fair value gap or imbalance on the chart. This will also act as a reference candlestick for drawing the FVG zone.
  • Now draw a horizontal line on highs/lows of previous/prior candlesticks. In case of an undervalued fair value gap, draw a horizontal line on the low of the previous candlestick and the high of the next candlestick. In case of an overrated FVG, draw a z horizontal line on the high of the previous candlestick and the low of the next candlestick.
  • Fill the difference between both lines with colour and extend this zone to the right until the price touches this zone; it will remain valid.
    Keep in mind that this FVG zone will act as a 'magnet for price ', attracting it. Once the price touches the zone or breaks the zone, it will become invalid.
helps-in-price-prediction.jpg
fvg-as-a-magnet.jpg
FVG creates an imbalance on the chart, and the price breaks through the zone later to keep a balance.
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