Fair Value Gap (FVG) — Trading Wiki

What Fair Value Gap (FVG) means

A Fair Value Gap is a three-candle pattern where wicks of the first and third candles don't overlap, representing a price inefficiency that markets tend to fill.

In depth

A Fair Value Gap (FVG) is a technical concept from Smart Money Concepts (SMC) and Inner Circle Trader (ICT) methodology that identifies areas of price inefficiency on a chart — zones where price moved so aggressively that it left behind an imbalance between buyers and sellers. Structurally, an FVG is defined by a three-candle sequence where the wicks (shadows) of the first and third candles do not overlap, creating a visible gap in price on the chart. This gap represents a range of prices where only one side of the market (buyers or sellers) was active.

A bullish FVG forms during a strong upward move: the high of candle one and the low of candle three do not overlap, creating a gap that represents unfilled sell orders and a demand zone. A bearish FVG forms during a strong downward move: the low of candle one and the high of candle three do not overlap, creating a supply zone. The efficient market theory suggests that price seeks equilibrium, and gaps in the price delivery represent areas where equilibrium was not achieved. Therefore, price has a statistical tendency to return to these zones to 'fill' or 'rebalance' the inefficiency before continuing in the original direction.

This rebalancing mechanism makes FVGs valuable for identifying high-probability entry zones during pullbacks within trends. The quality and reliability of FVGs varies significantly based on several factors. FVGs created by high-momentum, high-volume moves (often driven by news catalysts or institutional order flow) are more significant than those formed during low-volume drift. FVGs on higher timeframes (4-hour, daily, weekly) carry more weight than lower timeframe gaps because they represent larger institutional order flow imbalances. An FVG that aligns with an order block, a Fibonacci retracement level, or a key support/resistance zone creates a high-confluence trade setup.

When price returns to fill an FVG, traders look for specific entry confirmations: a rejection candlestick pattern (hammer, engulfing) at the gap level, or a shift in lower-timeframe market structure as price enters the gap zone.

Key points

• Created by a 3-candle sequence with non-overlapping wicks
• Represents market inefficiency that price tends to correct
• Best traded as entry zones when price returns to fill the gap

Practical tip

The most reliable FVGs are those formed on the daily chart with a minimum of 3 continuation candles after the gap. When price returns to fill the gap, enter at the 50% level of the FVG with a stop below the full gap range.

Why it matters when you are learning

FVGs give you institutional-grade entry points. Once you see them, you'll notice them everywhere — they're the market's footprints.

Practising Fair Value Gap (FVG) on the simulator

Reading about Fair Value Gap (FVG) and using it are different skills. Try it once in the simulator on an instrument you already follow, write down beforehand what you expect to happen, and check the journal a day later to see whether it played out that way. Educational simulation only — not financial advice.