What is a fair value gap (FVG)?
In one line: A fair value gap is a price area a fast move skipped over, seen as a gap between candle 1's high and candle 3's low (or the reverse).
How to spot one
A fair value gap (FVG) uses three candles in a row. The middle one is big and fast.
For an up move: look at candle 1's high and candle 3's low. If candle 3's low sits above candle 1's high, there's a space between them that only candle 2 traded through.
Example: candle 1's high is 100.50. Candle 2 races up. Candle 3's low is 101.20. The gap is 100.50 to 101.20, a zone 0.70 wide.
For a down move, flip it: candle 1's low sits above candle 3's high.
Why traders watch it
The idea: price moved so fast through that area that few orders traded there. Some traders expect price to come back and "fill" it later, then watch for a reaction inside the zone.
The term spread through online "smart money" teaching. Underneath, it's a simple thing: a spot where one side was clearly in charge for a moment, after a Displacement move.
The honest part
- Many gaps get filled, many don't. We know of no solid public study showing FVGs work better than any other level.
- Small ones are everywhere. On a 1-minute chart you'll find dozens a day. Most mean nothing.
- Context matters more than the gap. One that forms in the direction of the bigger trend, near a level where price turned before, is worth more than a random one.
Treat an FVG as a zone to watch, not a signal to enter. Wait for a candle body to close and confirm.
A common mistake
Entering the moment price touches the gap. Price can slice straight through it. Decide first where you're wrong, which is usually past the far side of the gap. Then size from that distance with the position size calculator.
Questions
Do fair value gaps always get filled?
No. Some fill within minutes, some take weeks, and some never fill. Treat "it must fill" as a belief, not a rule.
Is a fair value gap the same as a price gap?
Not quite. A normal Gap is empty space between one candle's close and the next one's open. An FVG is covered by candle 2, just thinly traded.
What timeframe is best for fair value gaps?
Gaps on bigger charts, like the 1-hour or daily, tend to matter more than ones on 1-minute charts, simply because more trading formed them.
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