Definition
A fair value gap is a discrete price region on a chart where the market traded rapidly through a range with minimal or no executed transactions, leaving an observable void in traded volume or price interaction. It reflects a local dislocation between the market’s transacted price and the price level that would be implied by a more balanced interaction of buy and sell interest. In advanced market structure analysis, fair value gaps are treated as evidence of an underlying order flow imbalance rather than a smooth, continuous price discovery process.
In crypto markets, fair value gaps often appear after sharp moves driven by concentrated liquidity, large orders, or sudden changes in sentiment. The gap highlights that the market did not spend sufficient time facilitating two-sided trade at those prices, so the recorded prints may not represent a stable consensus of fair value. As a concept, it is used to describe where the price path has skipped over potential equilibrium zones, not to prescribe any specific trading action.
Context and Usage
Fair value gaps are closely related to how order flow is absorbed or rejected as price moves through the order book. When aggressive orders sweep multiple price levels faster than passive liquidity can respond, the resulting price path can leave behind ranges with sparse execution data, which are then identified as gaps. These zones are interpreted as structural markers of where the market’s microstructure briefly failed to maintain continuous, balanced trading.
Because they arise from imbalances in supply and demand, fair value gaps are conceptually linked to phenomena such as price impact and slippage, which also stem from how orders interact with available liquidity. The gap itself is a descriptive feature of historical price behavior and liquidity distribution, indicating that the market’s transacted history in that region may be thinner or less representative than at surrounding prices. As such, it serves as a reference point for understanding where the market has not fully explored or validated intermediate price levels.