Reading Smart Money Movements: Tracking Institutional Intent Through Fair Value Gaps

In the world of trading, small retail traders find it difficult to compete on the same footing as institutional investors. However, understanding market structure makes it possible to anticipate market movements. Fair Value Gap (FVG) is a crucial clue for interpreting such market signals.

Fair Value Gap is the Market’s “Breath”

When prices move rapidly, not all price levels are traded through. Some levels are skipped, creating gaps in between. This is the essence of imbalance.

Formation Pattern:

• First candle: Bearish movement
• Second candle: Bullish impulsive move
• Third candle: Small correction or doji

With this 3-candle pattern, a price zone that has not been touched between the high of the first candle and the low of the third candle appears. This zone acts as a “magnet” where prices tend to return later.

Why Do Institutions Fill These Gaps?

Large buy orders cannot be placed all at once because they are too massive. So, they strategize:

Rapidly push the price up to execute some orders, then pull back to absorb more liquidity. During this process, the FVG acts like a magnet, attracting the price back.

Four Steps for Precise Trading

Step 1: Confirm Market Structure
First, identify the main trend. Check for Break of Structure (BOS) or changes in structure (CHoCH).

Step 2: Identify the Gap
Visually confirm if a bullish impulsive move has occurred and an FVG has formed. Mark it precisely with a rectangle tool on the chart.

Step 3: Wait for Retracement
Wait for the price to return to this zone. Once it does, patiently observe until confirmation candles form.

Step 4: Execute Entry
Enter at the confirmed candle or within the gap zone.

Combining Multiple Methods Increases Win Rate

Using FVG in conjunction with market structure can dramatically improve success rates.

Scenario Example:
BTC/USDT breaks previous high (BOS occurs) → FVG forms during this impulsive move → Price retraces → Confirmation candle appears in the FVG zone → Enter → Target next resistance level

If an FVG forms near or inside an Order Block (OB), it becomes even more reliable. Overlap indicates strong institutional interest.

Leverage Liquidity Hunts

Patterns where the price sweeps recent highs and lows before moving into an FVG are often the best entry points.

After a liquidity sweep (liquidity hunt), enter the FVG zone → Confirmation appears → Place stop-loss below the sweep → Take profit at the next level

Tips for Spotting on Charts

Optimal Timeframes:

• 4H and 1H: Capture large institutional moves
• 15M and 5M: Confirm entry timing
• 1M: For ultra-short-term traders (but must combine with higher timeframe analysis)

When practicing on mobile charts, start by identifying FVGs on the 1H chart, then confirm on the 15M.

Practical Example for Better Understanding

Currently, BTC is trading around $87.16K. Suppose during a strong bullish BOS on the 1H chart, an FVG forms between $61,000 and $61,600.

The next day, the price returns to $61,300 to fill this gap. Enter when a bullish engulfing candle confirms on the 15M chart.

• Entry: $61,350
• Stop-loss: $61,100
• Take profit: above $62,500

A risk-reward ratio of 3:1 or higher can compensate for multiple losses.

Similarly, for ETH/USDT, with current prices around $2.92K, applying the same logic allows for precise trading within smaller volatility ranges.

Never Forget Risk Management

• Risk per trade: 1-2% of total capital
• Stop-loss: Always set at a logical level (below the gap or below the OB)
• Take profit: Based on structure or multiple points strategy

Recording all FVG trades and reviewing them later accelerates skill development.

Summary: The Power to Read Market Essence

Fair Value Gaps are not just technical indicators; they are windows into market participants’ psychology and institutional behavior.

For small retail traders to escape retail traps and ride the flow of institutions, mastering this mechanism is essential. Always combine it with multiple elements:

• Market structure analysis
• Order block positioning
• Liquidity sweep history
• Higher timeframe context

Integrating these factors opens the path to consistent profits.