Glossary · Smart money

Fair value gap meaning: what is an FVG in trading?

A fair value gap is a three-candle pattern where a strong middle candle moves so fast that the wicks of the candles either side of it do not overlap, leaving a price range that traded only briefly.

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Short answer

A fair value gap (FVG) is the empty space inside a fast three-candle move. In a bullish FVG, the high of the first candle sits below the low of the third candle, so the big middle candle is the only one that traded that range. The gap is the zone between those two prices. Traders who use smart money concepts watch it because price often comes back into it later, and they treat that return as a place where the move may continue.

Key takeaways

  • Three candles, two wicks. The gap runs from candle 1's high to candle 3's low (bullish), or from candle 1's low to candle 3's high (bearish).
  • The middle candle does the work. A gap without a large, decisive middle candle is usually just noise.
  • A return is common, not promised. Price can fill a gap, half fill it, or never come back.

What a fair value gap is

Most candles overlap the one before and the one after. When a market moves quickly, often after a news release or at the open of the London session, one candle can travel so far that its neighbours no longer touch. The range that only the middle candle covered is the fair value gap, sometimes called an imbalance.

The name comes from the ICT (Inner Circle Trader) and smart money concepts vocabulary. The idea is that the move was so one-sided that buyers and sellers never had a fair two-way auction in that range, so price may later return to "rebalance" it. That story is a useful way to describe what the chart shows; it is not proof of what banks or funds were doing. Treat an FVG as a precise way to mark a fast move, and judge it on how it behaves in your own testing.

How to identify a fair value gap, step by step

  1. Find a strong candle. Look for a candle with a large body compared with the candles around it, closing near its high (bullish) or low (bearish).
  2. Mark candle 1. That is the candle immediately before the strong one. Note its high for a bullish move, its low for a bearish move.
  3. Mark candle 3. That is the candle immediately after the strong one. Note its low for a bullish move, its high for a bearish move.
  4. Check for a gap. If candle 3's low is above candle 1's high, there is a bullish FVG between those two prices. If the wicks overlap, there is no gap.
  5. Draw the box forward. Extend the zone to the right until price trades back through it.
EUR/USD 1-hour chart. A large bullish candle leaves a gap between the high of the candle before it at 1.0812 and the low of the candle after it at 1.0840; the gap is shaded, and price later returns into it near 1.0824 before rising again.
The shaded box runs from candle 1's high (1.0812) to candle 3's low (1.0840): the range only the middle candle traded. Price later dips into it and turns higher. Illustrative chart, not live market data.

In the chart above, candle 1's high is 1.0812 and candle 3's low is 1.0840. The 28-pip range between them is the gap. Several hours later price drifts back into it, touches 1.0824 and turns higher without closing through the bottom of the box.

Bullish vs bearish fair value gaps

A bullish FVG forms in a move up. The zone sits below the current price, from candle 1's high up to candle 3's low, and traders who use it look for price to dip into it and hold as support.

A bearish FVG is the mirror image. It forms in a move down, from candle 1's low down to candle 3's high, and sits above price. A return into it from below is watched as possible resistance.

Gold 1-hour chart. A large bearish candle leaves a gap between the low of the candle before it at 2,397 and the high of the candle after it at 2,386; price later rallies back into the gap, stalls below its top and falls again.
A bearish gap sits above price, from candle 1's low ($2,397) down to candle 3's high ($2,386). The rally back into it stalls and the move down resumes. Illustrative chart, not live market data.

Some traders also mark the midpoint of the gap, often called the consequent encroachment. A return that stops near the midpoint is read as stronger than one that fills the whole box. If price closes right through a gap and holds on the other side, the gap has failed, and some traders then flip it into an inverse fair value gap.

Common mistakes with FVGs

  • Marking every gap. On a 1-minute chart there are dozens a day. Gaps matter more on higher timeframes and when they come with a clear break of structure.
  • Using the wrong wicks. The gap is measured from wick to wick, not body to body. Bodies make the zone look larger than it is.
  • Treating the gap as a magnet that must pull price back. Some gaps are never revisited, especially in a strong trend. Waiting for every one to fill means missing moves and buying into failing ones.
  • Ignoring the trend. A bullish gap inside a downtrend is a weaker idea than one that agrees with the direction of the higher timeframe.
  • No plan for failure. Decide in advance what a close through the far side of the gap means for your idea.

For entries, stops and targets built around FVGs, read the fair value gap trading strategy.

Written and reviewed by the MarketPro research desk

MarketPro is a trading-signal and trading-education app operated by Harajuku Holdings LTD (Cyprus). Our signal desk publishes and tracks every trade idea in-app, and every page here is checked against the app's live behaviour before publishing. Last reviewed . How we produce signals and content · About MarketPro

FAQ

Frequently asked questions

What does FVG mean in trading?
FVG stands for fair value gap: a three-candle pattern where a fast middle candle leaves a range that the candles either side of it never traded. Traders mark it as a zone price may return to.
Do fair value gaps always get filled?
No. Many are revisited, partly or fully, but plenty are not, particularly in strong trends. A gap is a place to watch, not a forecast that price must come back.
What timeframe is best for fair value gaps?
Gaps on the 1-hour, 4-hour and daily charts are fewer and easier to act on than gaps on the 1-minute or 5-minute charts. Many traders mark the gap on a higher timeframe and then look for an entry on a lower one.
Is a fair value gap the same as a price gap?
No. A price gap is when one candle opens away from the previous close, as often happens over a weekend. A fair value gap happens inside continuous trading, between the wicks of candles 1 and 3.
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