Trading glossary
What is a fair value gap (FVG)?
A fair value gap is a three-candle imbalance where the first and third candles' wicks do not overlap, leaving a gap the middle candle moved through.
A fair value gap forms when price moves so quickly that, across three candles, the high of the first and the low of the third do not overlap (or the reverse in a decline). The space between them is the gap.
The idea, popular in smart money concepts, is that price often returns to fill part of the gap. It is a way of describing one-sided, fast movement.
How traders use it
- Mark the gap between the first candle's wick and the third candle's wick.
- Expect partial fills as often as full ones.
- Use gaps in the direction of the trend rather than against it.
Example
In a fast rally, candle one has a high of 1.0750 and candle three has a low of 1.0775. The 25-pip space between 1.0750 and 1.0775 is a fair value gap. A later pullback that dips into that area and holds is a common reaction.
Frequently asked questions
Is a fair value gap the same as a price gap?
No. A price gap is a jump between one close and the next open. A fair value gap can form on continuous markets with no gap between candles.
What is an imbalance?
Another name for the same idea: a move where one side clearly dominated.
Related terms
Often confused with
Educational content only, not financial advice. Chart patterns describe probabilities, not certainties, and every pattern can fail. See our disclaimer.