Fair Value Gap
A fair value gap occurs when there is a significant imbalance between supply and demand, leading to a rapid price move that leaves a void in the order book. This often happens after major news events or unexpected market shifts.
The price moves so quickly that there is little to no trading volume at the intervening price levels. Technical traders view these gaps as areas that the market may eventually return to fill.
This is because the rapid move often creates an inefficient price structure that needs to be corrected. Once the price returns to the gap, it often finds support or resistance.
Understanding fair value gaps is useful for identifying potential retracement targets and managing trade expectations. It highlights the importance of market efficiency and the tendency for prices to seek equilibrium.
These gaps are temporary disruptions in the otherwise smooth process of price discovery.