How do we identify the Fair value gap in the candlestick chart?

Post by **Ali** » Sat May 18, 2024 5:23 am

To find the fair value gap on the candlestick chart, you can easily follow these practical steps:

Look for a big candlestick on the chart with a big body and small upper or lower shadows. It should resemble the shape of a marubozu.

Now check the highs and lows of previous and prior candlesticks to the big candlestick. The previous or prior candlesticks should not overlap the big candlestick.

Now, find the gap area between the previous and prior candlestick.
For an undervalued gap, you should check the difference between the low of the previous and the high of the next candlestick.
However, for the overvalued FVG, you should check the difference between the low of the prior or next candlestick and the low of the previous candlestick.

The Gap area will act as a Fair value gap in trading.

In stocks or indices, gaps are easy to find on the chart. However, in forex trading, gaps are not easy to find due to the high-speed trading in the forex market. That’s why we use candlesticks to spot the fair value gaps. In stocks, if you switch to a higher timeframe, you will also observe the same phenomenon of big candlesticks and no overlapping candlesticks.