Lesson 46 of 69
Fair value gaps (FVG)
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A fair value is a small band of price where trading was effectively one-sided. Price moved so quickly that the other side of the market never got a chance to transact there. It is also called an imbalance or an , and it shows up as a three- pattern that you can spot in a couple of seconds once you know the shape.
The three-candle rule
Take any three in a row. In a move, if the low of candle three is above the high of candle one, the band between those two prices is a bullish fair value gap. In a move it is the mirror: if the high of candle three is below the low of candle one, the band between them is a bearish fair value gap. The big middle candle is the one that did the damage.
Why price comes back to fill it
- Nobody was able to buy or sell in that band, so unfilled orders remain sitting there waiting.
- Large participants cannot fill a full position inside one violent candle; they need a retrace to complete it.
- Traders who missed the move treat the gap as a discount (bullish) or a premium (bearish) entry area.
- Markets tend to rebalance: a one-sided move gets revisited so both sides can transact, then the original direction usually resumes.
How beginners use an
- 1Mark the gap on the 1-hour or 4-hour chart after a strong impulsive move. Ignore left by tiny, choppy candles.
- 2Wait for price to pull back into the gap — many traders use the midpoint of the band as the reference level.
- 3Look for a reaction candle inside the gap before entering. Entering just because price touched it is how you get run over.
- 4Place the stop beyond the far side of the gap or beyond the swing that created it, and target the high or low the impulse produced.
FVGs and zones are the same idea
A supply or marks where an imbalance started. A fair value gap marks the imbalance itself, mid-move. Both say the same thing: price was not efficient here, and unfinished business remains. When an FVG sits inside a fresh demand zone, that is one of the cleanest pullback entries a beginner can learn to wait for.
Honest caveat
Not every gap gets filled, and some get filled months later. Treat an FVG as a place where a reaction is more likely — never as a guarantee. It is a location tool, not a signal on its own, and it still needs a .
Key takeaways
- An FVG is the gap left between the wicks either side of a strong candle.
- It marks an imbalance where price moved too fast to trade fairly.
- Price often returns to fill part or all of the gap before continuing.
- Treat it as a pullback area, not a guaranteed reversal point.
Knowledge check
3 quick questions — your best score is saved to your progress.
1. A fair value gap forms when…
2. What often happens to an FVG?
3. How can an FVG be used?
Progress is saved on this device.
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