Fair Value Gap (FVG) Explained

Smart Money Concept (ICT / SMC)

Fair Value Gap (FVG)

An FVG — also called an imbalance or liquidity void — forms when a violent 3-candle move leaves a gap between candle 1's wick and candle 3's wick. It's a zone where price moved too fast to find real two-sided auction. Markets are efficient, so price almost always comes back to rebalance that zone before continuing.

📘 The 3-Candle Rule

Bullish FVG: candle 3 LOW is ABOVE candle 1 HIGH → the gap between them is the FVG.
Bearish FVG: candle 3 HIGH is BELOW candle 1 LOW → the gap between them is the FVG.
Candle 2 is the "displacement" — the violent impulse that creates the imbalance.

💡

Why FVGs Work

Institutions filled only a portion of their orders on the impulse. The unfilled orders sit inside the gap. When price returns, those orders activate — triggering reactions. Price almost always revisits FVGs to "rebalance" the inefficient move.

⚠️

Fresh vs Stale

Fresh FVG (untouched) = strongest reaction. After the first tap, the zone is "mitigated" and weakens with each retest. Always trade fresh first-touch setups.

📐

Consequent Encroachment

CE = the 50% midline of the FVG. ICT's highest-probability entry: price taps CE and rejects. Stop goes just past the far edge of the gap, keeping risk tight.

🔺

Higher TF = Higher Power

A 4H or Daily FVG will hold far more reliably than a 1min FVG. Stack them: find an HTF FVG, then drop to 5m/15m to find a precision entry as price enters the HTF zone.

🔄

Inverted FVG (IFVG)

If price closes decisively THROUGH an FVG, it "inverts" — a bullish FVG that breaks down becomes bearish resistance on retest, and vice versa. Failed zones flip roles.

🎯

Confluence Stacking

FVGs work best when stacked with: order blocks, liquidity sweeps (highs/lows taken first), session opens (London/NY), and key levels. One signal alone ≠ trade.

✏️ How to Draw an FVG on Your Chart

1. Spot the displacement
Find a big impulsive candle (candle 2) with strong volume and a large body.

2. Check the neighbours
Look at the candle before (1) and after (3). Compare candle 1's wick to candle 3's wick.

3. Mark the gap
Draw a horizontal box from candle 1's high to candle 3's low (bullish) or candle 1's low to candle 3's high (bearish).

4. Mark the CE line
Add a dashed line at the 50% midline. That's your primary entry.

5. Wait — don't chase
Let price come back to you. No pullback = no trade. FVGs are patience setups.

6. Confirm, then enter
Look for a rejection candle inside the gap. Stop beyond the far edge. Target prior liquidity.

⚡ Key Stat

Studies of institutional order flow show roughly 70–80% of FVGs get revisited within the same or next trading session on intraday timeframes. The market rebalances inefficient moves. This is why FVGs are a core pillar of ICT / Smart Money trading.

See these concepts live

ChartForge scores 12 instruments across 9 timeframes and refreshes every 10 seconds — one clear AI read, free education built in.

Open ChartForge Trader →