EXPLAINED: A Bearish Fair Value Gap (FVG) - Smart Money Concepts

A Bearish Fair Value Gap is a 3 candle structure with a DOWN impulse candle (2nd) that indicates and creates an imbalance or an inefficiency in the market.

WHAT DO THE IMBALANCES TELL US?

These imbalances tell us that the buying and selling is not equal. Now the market needs to rebalance (move at least to 50% of the fair value gap to fill) to make up for the imbalance and rebalance. For this to happen we need to see orders filled in the prices of the candle with the FVG.

HOW A BEARISH FAIR VALUE GAP IS CONSTRUCTED:

1st Candle
Draw a horizontal line from the bottom of the wick.

3rd Candle
Draw a horizontal line from the top of the wick

2nd Candle
Draw a BOX between the bottom and the top and pull it over to see the FVG range.

BETWEEN CANDLE 1 and CANDLE 3:

Do NOT show common prices. They do NOT touch where the lower & the upper wicks do NOT overlap.

With a Bearish FVG we can expect the market price to move UP.

HOW MUCH?

I believe a Bearish FVG needs to close at least 50%.

So you can drag a Gann Box or a Fib retracement (take out all the other levels except 50%).

Wait for the price to close and fill the prices and boom - Your Bearish Fair Value Gap has been filled.

SO WHAT?

When you see a Bearish Fair Value Gap, you can expect the price to move up. So you can place your stop loss below the downtrend.

You can place your entry where it shows upside is imminent to close the gap.

You can place your take profit above the 50% of the formation, as you expect the price to close.

But also, we use other confirmation signals with the Bearish Fair Value Gap.

Let me know if you have any other SMC (Smart Money Concepts) Questions.