Fair Value Gaps and Imbalances in Trading: The Smart Money Strategy Retail Traders Overlook
Ever wonder why price suddenly reverses or “fills the gap” before continuing its move?
That’s not randomness — it’s a blueprint. The market leaves behind imbalances and fair value gaps (FVGs) that signal where price is likely to return. These aren’t just visual quirks — they’re footprints of institutional activity.
If you’re serious about mastering smart money trading strategies, this is one concept you can’t afford to ignore.
What Is an Imbalance in Trading?
In trading, an imbalance refers to a price movement that’s too fast — where buyers or sellers aggressively push price in one direction, leaving little or no opportunity for the opposite side to fill orders.
The result? A “gap” in the price action, often seen between:
The high of one candle
And the low of the next two or three
This creates what’s called a Fair Value Gap — a zone where price moved inefficiently, and is likely to return for rebalancing.
✅ Smart money knows this. They use FVGs as magnets for future price movement.
What Is a Fair Value Gap (FVG)?
A Fair Value Gap is a void in price action caused by an imbalance in order flow. It signals that the market moved too quickly, and a “fair value” hasn’t been established yet.
This happens often during:
Breakouts from consolidation
News-driven spikes
Strong impulsive moves by institutions
These gaps are high-probability zones for price to return to, as smart money often revisits them to fill unfilled orders before continuing the move.
Why Smart Money Leaves Imbalances on Purpose
Institutions don’t just want to move price — they want to move it efficiently and profitably.
When they execute large positions, they:
Push price aggressively in their desired direction (creating the imbalance)
Wait for price to pull back into the gap where unfilled orders still rest
Use that pullback to accumulate or distribute more positions
This is what’s known as a mitigation move — and it’s a core part of smart money concepts and institutional trading strategy.
How to Identify and Use FVGs in Your Trading
Here’s a simple method to spot Fair Value Gaps:
✅ Look for three consecutive candles where the middle candle’s body moves sharply away from the prior and following candles, leaving a visible gap.
✅ Mark the zone from the first candle’s high to the third candle’s low (for bullish gaps) — or vice versa for bearish ones.
✅ Wait for price to retrace into that gap, then confirm with:
Market structure alignment
Session timing (e.g., NY or London open)
Rejection wicks or reversal patterns
Bonus: Fair Value Gaps align beautifully with other smart money tools like:
Liquidity zones
Order blocks
Break of structure (BOS)
Real-Life Example: The FVG Trap-and-Reverse
Let’s say price breaks out of a range with a strong bullish candle. It leaves a gap between the prior candle’s high and the breakout candle’s low.
Retail traders buy the breakout. But smart money? They wait.
Price retraces back into the Fair Value Gap, fills the unbalanced orders, and then launches higher with institutional backing — leaving retail behind or stopped out.
If you were patient, you’d catch the move from the zone smart money used to re-enter.
Why Fair Value Gaps Give You an Edge
Most traders chase price. You don’t have to.
FVGs give you:
✅ Precise re-entry zones
✅ Low-risk, high-reward setups
✅ Context on where smart money is active
If you can master reading imbalances, you’ll stop trading based on emotion — and start trading based on logic and intention.
Final Thoughts: Read the Gaps, Trade the Intention
Fair Value Gaps aren’t just technical quirks — they’re clues.
They show where price moved unfairly and where smart money plans to return. When you align FVGs with liquidity zones, market structure, and timing, you unlock a high-probability roadmap for price movement.
Start marking these gaps. Wait for the return. Let the market come to you.