What best describes a fair value gap in price action?

What best describes a fair value gap in price action?

• A. A period where price has many long wicks indicating consolidation.
• B. A liquidity void with no contradicting orders created during an expansionary move that breaks structure.
• C. A simple price gap that occurs during low volume.
• D. A classic reversal pattern signaling trend change.

Answer: (B)

A fair value gap is a liquidity void created when price moves decisively in one direction, breaking the previous structure, and leaves an unfilled area between candles. During that impulsive move, orders don’t line up quickly enough to trade through that range, so a gap forms in which there’s little to no resting liquidity. This gap is viewed as “fair value” because the market didn’t spend time at those levels, and price often returns to fill it later, using it as a magnet or support/resistance zone. That’s why the best description is a liquidity void formed during an expansionary move that breaks structure. The other options describe different chart phenomena (long wicks and consolidation, a simple gap from low volume, or a reversal pattern) and don’t capture the idea of an unfilled liquidity area created by a strong breakout.

A fair value gap is a liquidity void created when price moves decisively in one direction, breaking the previous structure, and leaves an unfilled area between candles. During that impulsive move, orders don’t line up quickly enough to trade through that range, so a gap forms in which there’s little to no resting liquidity. This gap is viewed as “fair value” because the market didn’t spend time at those levels, and price often returns to fill it later, using it as a magnet or support/resistance zone. That’s why the best description is a liquidity void formed during an expansionary move that breaks structure. The other options describe different chart phenomena (long wicks and consolidation, a simple gap from low volume, or a reversal pattern) and don’t capture the idea of an unfilled liquidity area created by a strong breakout.