In candlestick trading, a Fair Value Gap (FVG) is a price imbalance where the market moves so aggressively that it leaves a gap between buyers and sellers. This concept is commonly used in ICT (Inner Circle Trader) and Smart Money Concepts trading.
How to Identify a Fair Value Gap
Look for a 3-candle pattern:
Bullish Fair Value Gap
Candle 1 is bullish (or part of a strong upward move).
Candle 2 makes a strong upward expansion.
Candle 3 continues higher.
A bullish FVG exists when:
The high of Candle 1 is below the low of Candle 3.
Example:
Candle 1 Candle 2 Candle 3
| | |
High = 100 Low = 105
Gap = 100 to 105
The area between 100 and 105 is the bullish fair value gap.
Bearish Fair Value Gap
Candle 1 is bearish (or part of a strong downward move).
Candle 2 makes a strong downward expansion.
Candle 3 continues lower.
A bearish FVG exists when:
The low of Candle 1 is above the high of Candle 3.
Example:
Candle 1 Candle 2 Candle 3
| | |
Low = 100 High = 95
Gap = 95 to 100
The area between 95 and 100 is the bearish fair value gap.
Why Traders Watch FVGs
Markets often revisit these imbalanced areas before continuing the trend. Traders use FVGs to:
Find pullback entry points.
Identify support/resistance zones.
Set profit targets.
Combine with market structure and liquidity analysis.
Practical Trading Steps
Identify the trend.
Find a strong impulsive move.
Mark the FVG (between Candle 1 and Candle 3).
Wait for price to retrace into the gap.
Look for confirmation (rejection candle, break of structure, volume, etc.).
Enter in the direction of the original move.
Important Note
Not every FVG gets filled, and not every fill leads to a profitable trade. Most traders combine FVGs with:
Support and Resistance
Market Structure
Volume analysis
Risk management and stop-loss placement
A common rule is to focus on FVGs that form during strong momentum moves and align with the higher-timeframe trend, rather than taking every gap you see.
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