Fair Value Gap (FVG)
A three-candle price pattern where aggressive momentum leaves an imbalance — a gap between the high of the first candle and the low of the third candle that price tends to revisit.
A fair value gap (FVG) is a price action concept from the ICT (Inner Circle Trader) methodology. It describes a three-candle pattern where the middle candle moves so aggressively that it creates an imbalance — a gap between the wick of the first candle and the wick of the third candle.
Identifying a bullish FVG:
- Look at three consecutive candles.
- The middle candle has strong upward momentum.
- The low of the third candle is higher than the high of the first candle.
- The gap between the first candle's high and third candle's low is the fair value gap.
Identifying a bearish FVG:
The same concept in reverse — the high of the third candle is lower than the low of the first candle.
Why traders care about FVGs:
The theory is that these imbalances represent areas where price moved too quickly for efficient price discovery. The market tends to return to these zones to "fill" the gap before continuing in the original direction.
How traders use FVGs:
- As entry zones for pullback trades in the direction of the larger trend.
- As targets for take-profit levels when price approaches an unfilled gap.
- Combined with other ICT concepts like order blocks and kill zones for higher-probability setups.
Limitations:
Not every FVG gets filled, and the concept requires discretion in determining which gaps are significant. Two traders can disagree on whether a gap is valid. FVGs work best as one component of a broader trading framework, not as standalone signals.