What is a fair value gap (FVG)?
Also called: FVG, imbalance, price inefficiency
A fair value gap (FVG) is a three-candle pattern in which the wicks of the first and third candles do not overlap, leaving a price range that traded only once, during a fast move. In a bullish FVG, candle 1's high is below candle 3's low; in a bearish FVG, candle 1's low is above candle 3's high. SMC and ICT traders expect price to return to part of the gap, but it is a hypothesis to test, not a rule.
Bullish FVG
Candle 1 high is below candle 3 low. Gap: candle 1 high → candle 3 low.
Bearish FVG
Candle 1 low is above candle 3 high. Gap: candle 3 high → candle 1 low.
How a fair value gap forms
Look at any three consecutive candles. If the middle candle moves so fast that the first and third candles' wicks never overlap, the range between them is a fair value gap. Price passed through it only once, during the middle candle, so traders call it an imbalance or inefficiency.
- Bullish FVG: candle 1 high < candle 3 low. The gap runs from candle 1's high up to candle 3's low.
- Bearish FVG: candle 1 low > candle 3 high. The gap runs from candle 3's high up to candle 1's low.
The term comes from ICT (The Inner Circle Trader) material and is used across Smart Money Concepts (SMC). In classic technical analysis the closest ideas are a price gap and a thin-volume area.
FVG checker
Enter the high and low of candle 1 and candle 3 (candle 2 does not matter for the definition).
Bullish FVG from 2000 to 2006 (size 6), midpoint 2003.
Example numbers, not market prices.
How traders use fair value gaps
- Retracement entries: after a strong move, some traders wait for price to come back into the gap and enter in the direction of the move.
- The 50% level: the midpoint of the gap, called consequent encroachment in ICT material, is used as an entry or a reference level.
- Inverse FVG: if price later closes through a gap the other way, some traders treat the old gap as a level from the opposite side.
- Context filters: FVGs are usually combined with market structure (a break of structure), a liquidity sweep or a higher-timeframe bias rather than traded alone.
What the evidence says
There is no published, peer-reviewed study showing that trading fair value gaps is profitable. Gaps do not always fill: in a strong trend price can leave them behind for a long time. How often a gap is revisited also depends on the definition (any gap, or only large ones; which timeframe; how much of the gap counts as a fill), so a single statistic quoted online says little about your version.
How to test FVGs on your own charts
- Define the gap exactly: three candles on one timeframe, and a minimum size (for example as a share of the average range) so tiny gaps are ignored.
- Define the trade: entry at the edge or the 50% level, stop beyond candle 1, target and time limit.
- Record 100 or more cases across different market conditions, including costs.
- Measure in R and put the win rate and average win into the expectancy calculator to see whether there is an edge and what losing streaks to expect.
Frequently asked questions
What is a fair value gap in simple terms?
It is a price range that the market moved through so fast that the candles before and after the move do not overlap. On a chart it looks like a gap between the first candle's wick and the third candle's wick.
What is the difference between a bullish and a bearish FVG?
A bullish FVG forms in an up move: candle 1's high is below candle 3's low. A bearish FVG forms in a down move: candle 1's low is above candle 3's high.
Do fair value gaps always get filled?
No. Many are revisited, but in strong trends price can move away and never come back, and how often gaps fill depends on how you define them. Treat 'gaps get filled' as a hypothesis to test.
What is consequent encroachment?
An ICT term for the midpoint (50%) of a fair value gap. Some traders use it as an entry level or as a test of whether the gap is being respected.
What is an inverse fair value gap?
A gap that price has closed through in the opposite direction. Some traders then treat it as a level from the other side, for example a former bullish gap acting as resistance.
Is a fair value gap the same as a price gap?
Not quite. A classic gap is a jump between one candle's close and the next one's open, common in stocks overnight. In 24-hour markets such as forex such gaps are rare, so the FVG uses wicks across three candles to describe a similar imbalance.
Which timeframe is best for FVGs?
There is no best timeframe. Gaps appear on every timeframe; higher timeframes give fewer, larger gaps. Pick one, define it in your rules and test it.
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