Understanding Fair Value Gaps & Internal Liquidity in Trading

Price doesn’t move randomly. It moves towards liquidity.

Every candle, every spike, every fakeout has one purpose: to reach pools of resting orders. Market makers, institutions, and experienced traders use these liquidity pockets to enter or exit large positions before price shifts direction.

Understanding how liquidity works — especially Fair Value Gaps (FVGs) and Internal Liquidity — helps you stop reacting and start anticipating.

🔍 What Are Fair Value Gaps (FVGs)

Fair Value Gaps are common in price action. They appear when price moves so aggressively in one direction that it skips over an area, leaving behind a section of the chart where buyers and sellers didn’t fully interact.

These gaps are seen as zones of “unfair value” and often act as magnets for future price action.

📈 How to Spot a Fair Value Gap

Look for this three-candle pattern:

• A strong impulsive candle
• A continuation candle that opens and pushes in the same direction
• A visible gap between the 1st candle and 3rd candle wicks

Example (Bullish FVG):
After a strong green candle, the next one opens higher and continues the move. If it leaves a gap below — that’s your FVG. The market may return to that zone later to rebalance unexecuted orders.

Quick tip: FVGs are gaps caused by fast, aggressive moves. Price often revisits them as part of market balancing.

🎯 How I Use FVGs in My Trading

Direction Bias:
A bullish FVG that remains unfilled suggests strong buying pressure. I’ll stay long-biased until the gap is visited.

Entry Zones:
I wait for price to retrace into the FVG, especially if it aligns with support, resistance, or key Fibonacci levels.

Invalidation:
Once price fills the gap and moves past it, the edge is gone. I step aside.

💧 What Is Internal Liquidity

Internal liquidity refers to the resting orders within a price range — stop losses, pending entries, and trapped positions waiting to be cleared out.

When price breaks below support or above resistance, it’s often sweeping these orders. It’s not a random move — it’s a hunt for internal liquidity.

Internal Liquidity = the fuel behind stop hunts, fakeouts, and breakouts

🔎 How I Spot Internal Liquidity

Equal Highs and Lows:
If price taps the same level multiple times, expect a sweep. Many traders place their stops there, and smart money targets them.

Wick Fakes:
A sharp spike through a key level followed by a quick reversal? That’s often a liquidity grab.

Order Blocks near FVGs:
Consolidation zones near FVGs are usually full of resting orders. These are prime areas for large entries or exits.

🧠 FVG and Liquidity Trading Framework

Here’s how I combine these tools into a simple and effective approach:

🔁 FVG + Liquidity Checklist

Find the Structure
Start with the bigger picture. Is the market trending or ranging? Where are the key highs and lows?

Spot the FVG
Zoom into a lower timeframe and find a fresh gap. That marks the imbalance.

Map the Liquidity
Look for equal highs and lows nearby, previous wicks, or zones where retail traders are likely to be positioned.

Plan the Trade
Wait for price to retrace into the FVG, tap the liquidity, and show a strong reaction. That’s your entry.

🧪 Backtest, Journal, Manage Risk

There’s no perfect setup — but FVGs and internal liquidity offer insights into why price moves, not just where.

Backtest historical FVGs and note how price reacted. Track liquidity sweeps. And above all, keep a detailed journal. Tools like CoinMarketMan’s crypto trading journal are built for exactly this — helping traders tag their setups, log entries and exits, and study patterns in their own performance.

📊 Want to Go Deeper?

FVGs and liquidity concepts are deeply connected to our Intelligence features on CoinMarketMan — live analytics that show how thousands of real traders are positioned across the market.

It’s real data, from real positions, updated in real time.

🎤 Final Thoughts

FVGs and internal liquidity are more than technical setups — they reveal the story behind price. Where the market skipped. Where traders got trapped. Where price might revisit.

Understand them. Use them. Journal everything. And always protect your capital.

Good luck out there 👊