What is the fair value gap, and what are its types?

[Ali]

A fair Value Gap is an indicator that shows the difference between the current and fair prices of a financial asset in trading. It is also denoted by FVG. 

There are two types of FVG in trading, depending on the current price of a stock or financial asset.

01. Undervalued fair value gap
When the price of a financial asset is lower than its fair value, it means there is an Undervalued fair value gap in the market. It also indicates that the price may increase to its fair value in the future.
On the candlestick chart, you can identify the Undervalued gap when a big bearish candlestick forms on the chart without any overlap of previous or prior candlestick. 

02. Overrated Fair Value Gap
When the price of a financial asset is higher than its fair value, there is an overrated fair value gap. This gap represents the possibility that the price will drop to its fair value in the future to balance. 
On the candlestick chart, you can find a fair value gap if a big bullish candlestick forms without any prior or previous candlesticks overlapping.
In stocks, most gaps also represent the fair value gaps.