Imbalance aka FVG in trading

 To identify the correct Fair Value Gaps (FVGs) and imbalances for drawing a valid Demand Zone, you need to look for specific structural clues on your chart. [1]

Core Criteria for Demand FVGs
  • Three-Candle Pattern: The imbalance must exist between Candle 1's high and Candle 3's low in a bullish sequence.
  • Expansion Candle: Candle 2 must be a large, aggressive bullish candle showing strong institutional buying.
  • Unmitigated Gap: The price must not have returned to fill the space between Candle 1 and Candle 3 yet. [1, 2, 3]
How to Filter for the Best FVGs
  • Market Structure Shift (MSS): Only look for FVGs that occur right as price breaks a recent swing high. [1]
  • Discount Pricing: Apply a Fibonacci retracement tool from the swing low to the swing high. Only trade FVGs located below the 50% equilibrium level. [1, 2, 3]
  • Order Block Alignment: The highest-probability FVGs rest directly above or inside a bullish Order Block (the last down-close candle before the move). [1]
  • Takeout of Liquidity: Look for imbalances created immediately after price sweeps retail stop-losses (sell-side liquidity). [1]
Step-by-Step Drawing Method
  1. Locate the Impulse: Find the aggressive, large green candle that broke structure.
  2. Mark the Boundaries: Draw a horizontal zone from the high of the previous candle to the low of the following candle.
  3. Extend Right: Project this zone to the right; this is your high-probability Demand entry area. [1, 2, 3, 4, 5]

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