What a fair value gap is
A fair value gap (FVG) is a price area that the market moved through so fast that only a single candle traded there. It is also called an imbalance: for a short time, orders on one side heavily outweighed the other, so price moved without the usual back-and-forth.
The pattern uses a short sequence of candles:
- Candle A: the candle before the move.
- Candle B: a large candle that makes the strong move.
- Candle C: the candle after the move.
In a bullish FVG, the high of candle A sits below the low of candle C. The space between them is the gap. In a bearish FVG, the low of candle A sits above the high of candle C.
The wicks of A and C do not overlap. That missing overlap is the whole definition. The bodies do not matter on their own.
The term comes from Smart Money Concepts. It is often used together with order blocks and liquidity sweeps.
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A drawn example
The chart below is a sketch. It shows no real prices.
How to mark it:
- Find a large candle (B) in a strong move.
- Compare the high of A with the low of C for a bullish gap. For a bearish gap, compare the low of A with the high of C.
- If they do not overlap, draw a rectangle between those levels.
- Extend the rectangle to the right until price trades back into it.
Some traders also mark the midpoint of the zone and treat it as a reference level.
How traders use FVGs
FVG trading rests on the idea that price often returns to an imbalance and partly "fills" it before it continues. This is an observation, not a rule. Traders use the zone in a few ways:
- As an area of interest. A return into a bullish gap during an uptrend is read as a possible pullback area. A return into a bearish gap during a downtrend is read the same way.
- As context for structure. A gap that forms during a break of a swing high or low gives more weight to that break. See market structure.
- Across timeframes. A gap on a higher timeframe marks the zone. A lower timeframe shows how price behaves inside it. See multiple timeframe analysis.
- As a target. An unfilled gap behind price is sometimes treated as a level price may revisit.
A fair value gap strategy needs more than the gap. It needs a defined entry rule, a stop-loss level and a position size you fixed in advance. A gap alone does not tell you direction or timing.
Limitations and failure modes
FVGs appear constantly on every timeframe. Most of them carry little meaning. These are the common problems:
- Too many gaps. Any fast candle creates one. Without a filter such as trend, structure or session, the chart fills with zones and almost any reaction looks like confirmation afterwards.
- Price runs straight through. A gap can be filled completely and price can keep moving the other way. A filled gap is not support or resistance by default.
- Price never returns. Strong trends can leave gaps unfilled for a long time. Waiting for a fill can mean the move happens without you.
- News candles. Data releases produce large gaps from thin liquidity. These zones are often less reliable, and spreads can widen around them.
- Data differences. Feeds differ between providers, so a gap on one chart may be smaller, larger or missing on another. Weekend and session gaps are a different thing and should not be confused with an FVG.
- Hindsight. Gaps that "worked" are easy to spot on old charts. Test the rules forward, on new data, before you trust them.
A wider gap does not mean a stronger signal. The ATR indicator can help you judge whether a gap is large compared with normal movement.
Risk
Leveraged forex and CFD trading can lose money fast, including more than you planned if stops slip during fast moves. No chart pattern removes that. Size positions using risk management rules, and practise marking gaps on a demo account first.
Pakistani regulators have also warned about offshore platforms. Read law and regulators before you trade.
Frequent questions
Is a fair value gap the same as a price gap?
No. A price gap is a jump between a candle's close and the next candle's open, often over a weekend. An FVG is a wick-to-wick void inside continuous trading.
Does price always fill a fair value gap?
No. Some gaps are filled quickly, some partly, and some are never revisited.
Which timeframe is best for FVG trading?
No timeframe is better in general. Higher timeframes produce fewer gaps, and many traders treat those as more relevant. Lower timeframes produce many more.
Do I need an indicator to find FVGs?
No. You can mark them by hand from candle highs and lows. Indicators that draw them automatically can differ in their rules. Check how any such tool defines a gap.
Is an FVG a buy or sell signal?
No. It marks an area on the chart. Decisions need a full plan with entry, stop and size. See trading strategies.