Fair Value Gaps and Imbalance
When price moves so fast that a range of prices barely trades, it leaves a gap in the auction. Markets have a habit of coming back to fill it.
A market is an auction: for a price to be "fair", both sides have to get a chance to trade there. When a headline sends gold thirty dollars in one candle, a whole band of prices gets skipped — buyers who wanted in and sellers who wanted out never got filled.
That skipped band is a fair value gap, and unfinished business tends to get finished.
Spotting it
- Three candles — Look at any sharp candle with the candle before and after it.
- The gap is the untouched space — If the first candle’s high is below the third candle’s low (in an up move), that space between them never traded properly.
- Bigger gap, stronger pull — The wider the untouched band, the more unfilled interest it represents.
- It is a magnet, not a clock — A gap can be filled in an hour or in three months.
How to actually use it
The useful version is defensive. If gold has run vertically and left a gap behind, chasing the move means buying with a known magnet underneath you. Waiting for the pullback into that gap turns the same trade into one with a defined risk.
When it fails
In a genuinely strong trend gaps go unfilled for a long time — a market repricing on real news has no obligation to come back at all. And because a gap sits on every timeframe, someone determined to find one always can. If the gap is not obvious at a glance, it is not a level, it is a rationalisation.