Fair Value Gap (FVG) Explained: The Imbalance a Fast Move Leaves
A fair value gap is the space one fast leg leaves behind, where price moved too quickly for trade to happen at every level. It is simple to spot mechanically, which is exactly why it needs filtering.
A fair value gap is a band of prices left behind by one fast move, defined by three candles: the first candle's high below the third candle's low for a bullish gap, and the reverse for a bearish one. Price often returns to it later, but there is no rule that a gap must be filled, and in strong trends many never are.
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Open the live chart →The three-candle rule
Take any three consecutive candles. If the first candle's high is below the third candle's low, the middle candle moved so fast that a band of prices never traded on both sides - that band is a bullish fair value gap. Flip it for a bearish one: the first candle's low sits above the third candle's high.
The band between those two wicks is the gap. That is the entire definition, and it is why the concept is easy to code and easy to over-apply.
Why price often comes back
A fast leg happens when one side is overwhelmed. Some participants wanted to trade in that band and never got the chance, and short-term traders who chased the move look to exit nearer their entry. Both of those can pull price back through the band later. "Often" is doing real work in that sentence: plenty of gaps are never revisited, and in a strong trend they can stay open for a long time.
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Play free, no signup →How to use one without fooling yourself
- Filter by size and context. Every chart is full of tiny gaps. The ones worth marking came from a leg that also broke structure.
- Mark it, then wait for behaviour. A gap is a zone of interest, not a trigger. What price does on the return - stalls, wicks through, closes back inside - is the actual information.
- Use the midpoint. Many traders treat the 50% level of the gap as the decision point, so a return that stops short of it is a different event from one that runs through it.
- Pair it with the zone that made it. A gap sitting on an order block is one location, not two signals.
When the idea fails
- Gaps do not have to be filled. There is no rule that says they must, and treating one as a guaranteed magnet is how people end up fading a trend all the way up.
- Too many of them. On a low timeframe you will find gaps constantly; most are noise from a single fast tick.
- News gaps are different. An imbalance created by a data release reflects a repricing, and price has no obligation to go back to the old value.
- Weekend gaps are not FVGs. A Sunday open away from Friday's close is a different phenomenon with different causes.
- Hindsight selection. Marking only the gaps that filled makes the idea look perfect. If you want to know how it performs, count the ones that did not.
Where it fits
Fair value gaps are one piece of the smart money concepts toolkit. They describe the space a move left; order blocks describe where it started; a liquidity sweep often explains why it started.
Frequently asked questions
What is a fair value gap?
A band of prices left behind by a fast move, defined by three candles: the first candle's high below the third candle's low for a bullish gap, and the reverse for a bearish one.
Do fair value gaps always get filled?
No. Many are revisited, many are not, and in a strong trend a gap can stay open indefinitely. Treating a fill as certain is the most common mistake with this idea.
What is the difference between a fair value gap and an imbalance?
They are usually used to mean the same thing. 'Imbalance' is the general term; the three-candle definition is the specific version most traders mark.
What timeframe should I use?
Higher timeframes produce fewer and more meaningful gaps. On very low timeframes almost every fast tick leaves one, which makes them hard to filter.
Keep learning
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