Fair value gap
A three-candle formation that leaves a range of prices traded in one direction only.
A fair value gap (FVG) appears when price moves so fast that the candle before the move and the candle after it do not overlap. The range between them was traded by the middle candle alone. Traders treat that range as an imbalance and watch for price to come back to it.
What is a fair value gap
A fair value gap is the space between the wick of the first candle and the wick of the third candle in a three-candle sequence. The middle candle is large and one-sided – it is called the displacement candle.
The term comes from ICT (Inner Circle Trader) and smart money concepts. The reading is simple: one side was so aggressive that the other had no chance to trade in that range.
Bullish and bearish fair value gaps
- Bullish FVG – the low of the third candle is above the high of the first. The gap is the range between those two prices and is read as support.
- Bearish FVG – the high of the third candle is below the low of the first. The gap is read as resistance.
- The larger the gap relative to recent candles and the higher the timeframe, the more attention it gets.
How to find a fair value gap
On Charts the Fair Value Gaps indicator in the Smart Money group marks them for you. Smart Money indicators are included in Plus and Premium.
- Look for a candle clearly larger than the ones around it.
- Compare the candle before it with the candle after it: if their wicks do not overlap, the space between them is the gap.
- Mark the gap with a rectangle from the first candle forward and keep it until price trades through it.
How to trade a fair value gap
A gap is a place to look for a trade, not a signal on its own. It works best with the trend of the higher timeframe.
- Direction – trade the gap in the direction of the displacement: longs from a bullish gap, shorts from a bearish one.
- Entry – when price returns to the gap. Common choices are the near edge or the midpoint of the gap.
- Stop – beyond the far edge of the gap or beyond the first candle of the formation.
- Target – the high or low that the displacement created, or the next area of liquidity beyond it.
Inverse fair value gap
An inverse fair value gap (IFVG) is a gap that failed. Price closes through a bullish gap instead of bouncing from it, and the same range then tends to act as resistance. A bearish gap that price closes above tends to act as support.
Traders use an inverse gap as an early sign that the move behind the original gap has lost control.
Common mistakes with fair value gaps
- Trading every gap – on low timeframes they appear all the time, and most mean nothing.
- Ignoring the trend – a bullish gap in a falling market is often just a pause.
- Expecting every gap to fill – many are filled only partly, and some not at all.
- Placing the stop inside the gap – a full fill is normal and does not cancel the idea.
Frequently asked questions
What is a fair value gap in trading?
A range of prices that only one candle traded through. It is found in a three-candle sequence where the wicks of the first and third candles do not overlap.
What does a fair value gap example look like?
Three candles in a row. The first has a high of 100. The second is a large rising candle. The third has a low of 104. The range from 100 to 104 is a bullish fair value gap.
What is an inverse fair value gap?
A fair value gap that price has closed through. It changes its role: a broken bullish gap is read as resistance, a broken bearish gap as support.
Do fair value gaps always get filled?
No. Price often returns to a gap, but some are filled only partly and some are left open for a long time. A gap is an area of interest, not a promise.
Fair value gap vs order block: what is the difference?
A fair value gap is the empty range left by a fast move. An order block is the last opposite candle before that move. They often sit next to each other, and traders use both as areas to enter from.
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Order blockLiquidity sweepBreak of structureSmart money concepts