What Is a Fair Value Gap?
A Fair Value Gap (FVG) is a price imbalance on a chart where buyers and sellers failed to interact efficiently. It appears when a candle moves so quickly in one direction that it leaves behind a “gap” — an area where little to no trading occurred.
In ICT (Inner Circle Trader) concepts, FVGs are seen as footprints of institutional activity, often marking areas where price may later return to “rebalance.”
- Highlights inefficiency in price delivery
- Acts as potential support or resistance zone
- Frequently used in ICT and smart money trading strategies
How a Fair Value Gap Forms
Fair value gaps typically form in three-candle patterns:
- Candle 1 creates a move in one direction.
- Candle 2 drives aggressively away, leaving a gap.
- Candle 3 may partially or fully fill that gap later.
The untraded area between the wick of Candle 1 and the wick of Candle 3 is the FVG zone.
Example:
- If a bullish candle is followed by a strong rally candle, and the next candle does not overlap the first candle’s wick → a bullish FVG is created.
- Price may revisit that gap before continuing higher.
How Traders Use FVGs in Practice
Fair value gaps are rarely traded in isolation. Instead, they are combined with other ICT concepts to increase probability:
- Look for FVGs aligning with liquidity pools, order blocks, or SMT divergences
- Use them as entry zones when price retraces into the gap
- Target them as profit-taking zones when trading in the opposite direction
- Filter signals by timeframe (higher-timeframe FVGs tend to hold more weight)
Why Fair Value Gaps Matter
Fair value gaps give traders insight into where institutions may want to rebalance price and where inefficiencies exist in the market.
- Provide logical areas for entries, exits, or stop placements
- Help traders avoid random entries by focusing on institutional footprints
- Reinforce the idea that markets are driven by efficiency and rebalancing
Popular among ICT-inspired traders, FVGs are now considered one of the core building blocks of smart money trading strategies.
Example of a Fair Value Gap in EUR/USD
Imagine EUR/USD is trading around 1.0900:
- Candle 1 (Bullish) closes at 1.0905 with a wick down to 1.0895.
- Candle 2 (Strong Rally) pushes quickly higher, closing at 1.0925, leaving a large imbalance.
- Candle 3 opens at 1.0926 and never trades back into the 1.0895–1.0905 zone.
The unfilled space between 1.0895 and 1.0905 becomes the bullish Fair Value Gap. Traders then watch for price to retrace into this area — often treating it as a buying opportunity before continuing higher.
