What Is a Fair Value Gap?
A Fair Value Gap (FVG) is a three-candle formation where the middle candle moves so aggressively that it leaves an imbalance between the high of the first candle and the low of the third candle. This inefficiency is a magnet for price — institutions send price back to "fill" these gaps before continuing the original move.
Why Do Fair Value Gaps Form?
FVGs form when large institutional orders hit the market with such velocity that normal two-way trading cannot occur. The result is a void in price — a zone where no trades were matched. Because market makers are obligated to ensure fair pricing, price will revisit these zones.
How to Identify an FVG on the Chart
The rules are simple:
- Candle 1 has a high (for a bullish FVG, this becomes the bottom of the gap)
- Candle 2 is a strong directional candle
- Candle 3 has a low that does not overlap Candle 1 high (bullish FVG) or Candle 1 low does not overlap Candle 3 low (bearish FVG)
Trading the FVG: Entry Technique
Wait for price to return into the FVG zone. On the 15-minute chart, look for a confirmation candle — ideally a rejection wick or engulfing pattern — inside the gap. Your stop loss sits just below the gap (for longs) with a target at the next liquidity pool or previous high.
FVGs on Higher Timeframes
The most reliable FVGs occur on the 4H and Daily charts. These represent true institutional imbalances that the market will revisit, sometimes days later. Always mark your daily and 4H FVGs first, then drop to the 1H or 15M to refine your entry.
Common Mistakes
Traders often enter on the first touch of the FVG without waiting for confirmation. This results in premature entries. Always wait for the candle close inside the gap and a rejection signal before committing. Also, FVGs on the 1M and 5M charts are far less reliable — stick to 15M and above.
The FVG is not the setup — it is the magnet. Your actual entry comes from price behaviour inside the gap, not the gap itself.
Master the Fair Value Gap and you will have one of the highest-probability tools in the ICT playbook working for you every single session.