Fair Value Gap (FVG)

How to mark one

Look at any three candles in a row and compare the outer two. The middle candle doesn't matter except as the cause.

• Bullish FVG: the third candle's low is above the first candle's high. The gap runs from candle 1's high (bottom) to candle 3's low (top).
• Bearish FVG: the third candle's high is below the first candle's low. The gap runs from candle 3's high (bottom) to candle 1's low (top).

Use the wicks, not the bodies. If the wicks of candle 1 and candle 3 touch or overlap, there is no gap, however big the middle candle is. Gaps on higher timeframes are fewer and usually watched more closely.

How traders use it

• As an entry zone. In an uptrend, a pullback into a bullish gap is a place to look for a buy, with the stop below the gap or below the swing low that started the move.
• As a target. An unfilled gap behind price is somewhere price may return to. This is part of what ICT teaching calls internal range liquidity, against the outer highs and lows covered on the buy-side / sell-side liquidity page.
• As proof of a strong move. A gap shows the move was one-sided. Many traders only trust an order block or a break of structure when the move away left one.

There is no agreed rule for when a gap stops counting. Some traders drop it after the first touch, some at the 50% line, some only once a candle closes beyond its far side. Pick one and keep it.

A worked example

A 4-hour gold (XAU/USD) chart. The prices are an illustration, not real data.

• The gap: candle 1 trades between 4,026.00 and 4,031.00. Candle 2 rallies from 4,028.00 to 4,066.00. Candle 3 trades between 4,047.00 and 4,071.00. Candle 3's low (4,047.00) is above candle 1's high (4,031.00), so there is a bullish gap from 4,031.00 to 4,047.00, $16.00 wide, with its midpoint at 4,039.00.
• The trade idea: price pulls back into the gap and a 1-hour candle closes up at 4,043.00. A buy there, with the stop at 4,023.00 (below candle 1's low, the start of the move), risks $20.00 an ounce. The target is the high from earlier in the week at 4,083.00, $40.00 away: 1:2.
• The size: one standard lot of gold is 100 ounces, so a $20.00 stop costs $2,000 per lot. Risking $40 gives 0.02 lots; at the target the gain would be $80.
• If it fails: a 4-hour close below 4,031.00 means the gap has been run straight through. The buy idea is weaker, and the stop is close.

The lot size calculator and pip calculator handle gold's 100-ounce lot for you.

Why it matters

A fair value gap is one of the few smart-money ideas with an exact rule: two numbers either overlap or they don't. That makes it easy to mark the same way every time and to check later in a journal. It also explains why price so often comes back to an area it left in a hurry, before carrying on.

Common mistakes

• Measuring from the bodies. The gap is between wicks. Bodies make gaps look bigger than they are, and some aren't gaps at all.
• Buying every bullish gap. Small timeframes print gaps all day. Without a trend and a reason above it, a gap is just a fast candle.
• Expecting the gap to be filled exactly. Price may stop at the edge, the middle, or not come back at all. Plan for each before you enter.
• Confusing it with a weekend gap. A jump between Friday's close and Monday's open is a different thing, with no trading inside it.

Questions

Fair value gaps in the app

StraviFX's hourly Swing signals check (Premium, monthly plans and longer) uses the strict three-candle rule on the 4-hour chart: a bullish gap when the last closed 4-hour candle's low is above the high of the candle two before it, and the mirror image for a bearish gap. It only looks at the gap formed by the three most recent closed 4-hour candles. A setup also needs the daily trend to agree, a sweep or break of structure, a strong 4-hour candle, and a 1-hour candle that closes inside the gap in the trade's direction. These are rules for reading a chart, not predictions; the decision stays with you.

Related terms

• Market structure: The sequence of swing highs and lows a market prints: rising is bullish, falling is bearish, neither is a range.
• Break of Structure (BOS): A candle close beyond the last swing high or low in the direction of the trend. It signals continuation.
• Change of Character (CHoCH): The first break against the trend: an uptrend closing below its last higher low, or a downtrend above its last lower high.
• Market Structure Shift (MSS): The confirmed flip that can follow a CHoCH: a failed swing in the old direction, then a close beyond the next swing.
• Swing high / swing low: A candle whose high is above its neighbours, or whose low is below them. The pivots every structure reading is measured from.
• Higher highs / higher lows: The four swing labels (HH, HL, LH, LL) and what each combination says: uptrend, downtrend or range.
• Range / consolidation: Price moving between a ceiling and a floor with no new highs or lows beyond them. A reason to wait, or to trade the edges.
• Retest: Price coming back to a level it has just closed beyond, to see whether the level now holds from the other side.
• Liquidity: Resting orders, mostly stop losses, that pool just beyond obvious highs, lows and round numbers. Price is often drawn toward them.
• Liquidity sweep / stop hunt: A push past an obvious high or low that triggers the stops there, then closes back inside. A close beyond is a breakout.
• Buy-side / sell-side liquidity: Buy orders resting above price (BSL) and sell orders resting below it (SSL). The pools a move is likely to travel toward.
• Equal highs / equal lows: Two or more highs or lows at nearly the same price. A flat edge that collects stops, so a common sweep target.
• Order block (OB): The last opposing candle before a strong move away. A zone price may return to, with the stop just beyond it.
• Breaker block: A failed order block that price closes through, then returns to from the other side, where it can act the opposite way.
• Mitigation block: A failed order block after a swing that fell short. Price breaks it, then returns from the other side as trapped traders exit.
• Supply / demand zone: The base a sharp move left from: demand below price, supply above. The first return to a fresh zone usually counts most.
• Premium / discount: A range split at its 50% midpoint, equilibrium. Buy in the discount half, sell in the premium half.
• Optimal Trade Entry (OTE): The 62–79% pullback of the last impulse leg. A deep entry that keeps the stop close and the target far.
• Entry: The price a trade opens at: market, limit or stop. With the stop and target fixed, it sets the risk and the reward.
• Stop loss: An order that closes the trade at a set price to cap the loss. It goes where the idea is proven wrong, plus a buffer.

See every term in the trading glossary.