worldwebfx Join free
Free lesson · Intermediate

Fair value gap (FVG): what it is and how to trade it

A fair value gap is a footprint of urgency: a move so fast that the market skipped a price area, trading it in only one direction. Price often comes back to that area later. Used with structure and liquidity, FVGs give precise entries with tight, logical stops.

Updated · 4 min read

1. The three-candle rule

A bullish fair value gap: candle 3's low stays above candle 1's high, leaving a price area that only the big middle candle traded throughBullish FVGcandle 1 high123candle 3 low
Look at three candles in a row. In a bullish FVG the high of candle 1 is below the low of candle 3. The space between them was crossed only by candle 2.
  • Bullish FVG: candle 1 high < candle 3 low. The gap is the zone from candle 1's high up to candle 3's low.
  • Bearish FVG: candle 1 low > candle 3 high. The gap is the zone from candle 3's high up to candle 1's low.
  • The middle candle is usually large and has a big body: this is called displacement, a sign that one side acted with urgency.
A bearish fair value gap: candle 3's high stays below candle 1's lowBearish FVG123
The bearish version: sellers pushed price down so fast that the area between candle 1's low and candle 3's high was only traded on the way down.

2. Why price tends to come back

In the gap, orders were filled in only one direction, so the area is "unbalanced". Price often returns to it to trade there in both directions before continuing. This is a tendency, not a rule: in very strong moves price may never return, and some gaps are filled completely and broken.

The midpoint of the gap is called consequent encroachment (CE). Many traders watch it as the most likely reaction point.

Price returns into the gap, reacts near its midpoint (consequent encroachment) and continues in the original directionFVGCE 50%reaction
A typical sequence: displacement up leaves an FVG, price pulls back into the gap, reacts around the CE and makes a new high.

3. Which gaps are worth trading

Charts are full of small gaps. These filters keep only the meaningful ones:

  • Created by displacement that breaks structure. An FVG inside the move that made a break of structure (BOS) or change of character (CHoCH) shows real intent. See price action for BOS and CHoCH.
  • In the direction of the higher timeframe. A bullish FVG on the 15-minute chart is far more reliable when the 4-hour structure is bullish.
  • In the right location. Bullish gaps are best below the middle of the current range (discount); bearish gaps above it (premium).
  • Fresh. The first return into a gap is the most important. Each further touch weakens it.
  • Meaningful size. Compare it with ATR: a gap of a few cents on gold's 1-minute chart is noise.

4. When a gap fails: the inversion FVG

If price closes through a fair value gap instead of reacting, the gap has failed. That failed zone often flips its role: a broken bullish FVG can act as resistance on the way back up (an inversion FVG). A close beyond the whole gap is information, not a reason to hold on.

5. A step-by-step FVG plan

  1. Bias: find the direction on the 4-hour or daily chart.
  2. Liquidity: ideally, wait for a sweep of a nearby high or low against the bias (see liquidity).
  3. Displacement: a strong move back in your direction that breaks structure on the 15-minute or 1-hour chart and leaves an FVG.
  4. Entry: a limit order at the top of a bullish gap (bottom of a bearish one) or at its CE.
  5. Stop: beyond the swing that created the move, or at least beyond candle 1 of the gap.
  6. Target: the next liquidity pool: the opposite swing high or low, or the previous day's high or low.
  7. Size: from the stop distance with the position size calculator.

6. FVG and order blocks

A strong displacement often leaves both: an order block (the last opposite candle before the move) and an FVG inside the move. When the two overlap, the zone has more confluence. When price ignores both and closes through them, the idea is wrong.

7. Common mistakes

  • Marking every gap on every timeframe.
  • Trading gaps against the higher timeframe trend.
  • Placing the stop inside the gap, where normal pullbacks reach it.
  • Expecting every gap to be filled; strong trends leave gaps behind for a long time.
  • Entering before price reaches the gap because of fear of missing out.

Frequently asked questions

What is a fair value gap in trading?

A three-candle pattern where the first and third candles do not overlap, leaving a price area that was crossed in only one direction by the middle candle. It shows an imbalance between buyers and sellers.

Do all fair value gaps get filled?

No. Many are partly or fully revisited, but in strong trends some gaps are never filled. Treat an FVG as an area where a reaction is more likely, not as a guaranteed target.

What is consequent encroachment?

The 50% level of a fair value gap. Price often reacts around it; a close through the whole gap means the gap has failed.

What timeframe is best for FVGs?

Mark the important gaps on the 4-hour and 1-hour charts and use the 15-minute or 5-minute chart for entries. The higher the timeframe, the more significant the gap.

What is the difference between an FVG and an order block?

An order block is the last opposite candle before a strong move; an FVG is the imbalance inside the move. They often appear together, and overlapping zones are stronger.

Education only, not investment advice. Trading forex, gold and CFDs carries a high risk of losing money.

Confirm it is you