Fair Value Gaps: An Introduction

What a fair value gap is

A fair value gap (FVG), or imbalance, is a three-candle pattern where the middle candle moves so fast that the first candle's wick and the third candle's wick do not overlap. The result is a price span that traded in only one direction — a gap in two-way dealing. In a bullish FVG, the gap sits between candle one's high and candle three's low.

The behavioural observation

Markets frequently return to partially or fully fill these gaps before continuing. The SMC narrative says price rebalances inefficiency; a plainer reading is that fast moves overshoot and retrace, and the gap simply marks where the fast move happened. Either way, the retracement tendency is observable often enough that traders use FVGs as pullback destinations.