Recently, while organizing my trading notes, I realized that many people still have a somewhat fuzzy understanding of the fair value gap (FVG). In fact, when used properly, this tool can help you anticipate the market’s next move in advance. So today, I want to discuss the different types of FVGs and their practical applications.

Let's start with the most basic bullish and bearish FVGs. A bullish FVG occurs when the opening price is significantly higher than the previous day's close, leaving an upward gap on the chart. This usually indicates strong buying pressure. Conversely, a bearish FVG happens when the opening price is below the previous day's low, reflecting selling pressure. The key to identifying these two is to look at the trading volume; if the gap forms with increased volume, the signal is stronger. If the price continues to rise after a bullish FVG, that gap area often becomes a new support level. For bearish FVGs, the opposite applies, and it may serve as a resistance level.

Next, let's talk about runaway FVGs. These appear in the middle of a trend with strong market momentum and little obvious support or resistance nearby. In such cases, FVGs are usually not quickly filled; instead, the price tends to continue moving in the trend direction. Traders often use them to gauge how much more room the trend has to run.

Then there’s exhaustion FVG, which is quite critical because it signals a potential reversal. These typically appear at the end of a long-term trend and are accompanied by declining volume. When you see this type of FVG, pay attention to signs of reversal, such as the price starting to move against the previous trend. Once a reversal is confirmed, you can consider closing positions or opening new ones in the opposite direction.

During consolidation periods, common FVGs can appear. These gaps are usually small, with low volume, and are often filled within a few trading days. Most traders tend to ignore them or use them for short-term trades.

Another important pattern is the island reversal FVG, formed by two gaps. The first gap aligns with the current trend, followed by a brief consolidation, then a second gap appears in the opposite direction, creating an isolated "island" of price. This is a strong reversal signal, often accompanied by a surge in volume.

Professional FVGs are left by institutional traders. They are characterized by very large volume and gaps that are not quickly filled, often becoming new support or resistance levels. In contrast, novice FVGs tend to appear early in a trend, with lower volume, and may reverse quickly, potentially leading to misleading signals.

Midpoint FVGs occur around the 50% mark of a trend and serve as continuation signals. Traders often use their size to predict how much further the trend can go.

Honestly, once you master these FVG types, your market judgment will become much more accurate. Each type of FVG has unique features that reflect different market sentiments. Recognizing them, combined with volume and trend context analysis, can help you better predict market directions and optimize your trading strategies. The most important thing is not to look at the FVG alone but to consider its position, volume, and subsequent price movement to avoid being misled.