
What Are Fair Value Gaps (FVGs) in Trading? A Complete Guide to Spotting Hidden Market Imbalances

“The market is a device for transferring money from the impatient to the patient.” – Warren Buffett
Fair Value Gaps (FVGs) are price inefficiencies on a candlestick chart that many traders overlook but institutions heavily monitor. These gaps signal where price has moved too quickly and left "imbalances" behind — areas that often attract price back for rebalancing.
In the world of smart money trading (often referred to as ICT-style or institutional trading concepts), FVGs are foundational. Understanding and mastering FVGs can help you trade with the institutions instead of against them.
Key Takeaways
- Fair Value Gaps (FVGs) show imbalance zones where price moved too fast without enough buyers/sellers.
- Traders often expect price to revisit these gaps before continuing.
- FVGs are more common on lower timeframes (e.g., 1H, 15M) but can appear on higher ones too.
- Not all FVGs are respected as some get ignored or fail entirely.
- Understanding the difference between FVGs and standard price gaps helps you avoid confusion.
What is a Fair Value Gap?
A fair value gap is a void left behind on a price chart where there's an imbalance between buyers and sellers. These gaps usually occur after a strong impulse move, leaving a price area untested. Think of it as the market moving too fast and not leaving footprints behind. That gap becomes a key zone where price may return to "fill the gap."
These imbalances are important because they represent areas where institutions did not finish executing orders. When price revisits them, smart money often steps back in.

Where Do Fair Value Gaps Occur?
Fair value gaps are most common after:
- Major news events
- Breakouts from consolidation
- Sharp directional moves
- Institutional buying or selling pressure
For example, on a 15-minute or 1-hour chart, you might see a sudden bullish candle that skips over a range of price levels. That skipped range is your FVG.
FVGs vs. Regular Price Gaps
Feature | Fair Value Gaps (FVGs) | Regular Price Gaps (Daily Chart Gaps) |
---|---|---|
Definition | Imbalance between buy/sell orders within 3-candle structures | Space between the closing price of one day and the next day's opening price |
Timeframe | Seen on intraday or lower timeframes (1m, 5m, 15m, 1H) | Seen mostly on daily or higher timeframes |
Cause | Caused by institutional order flow and aggressive execution | Caused by overnight news, earnings, or macro events |
Appearance | Middle candle leaves a “gap” between the wicks of adjacent candles | Actual price skip with no candles trading within the gap |
Interpretation | Represents unfilled liquidity; price often returns to it | May act as support/resistance; not always filled |
Used in | Smart money or ICT-based strategies | Technical analysis, news-driven strategies |
Reliability | High in context of trend/momentum and structure | Can be unpredictable and news-sensitive |
Trader Use Case | Re-entry points, retracement targets, precision scalping | Breakout gaps, earnings reactions, swing trade setups |
How to Identify Fair Value Gaps
Traders typically spot FVGs using a 3-candle pattern:
- Candle 1: Large bullish/bearish impulse candle
- Candle 2: Tiny or no overlap with Candle 1
- Candle 3: Confirms price moving away without retesting the middle zone
The space between Candle 1 and Candle 3 that wasn’t revisited is the fair value gap.
When Fair Value Gaps Fail
No tool in trading is 100% reliable, and FVGs are no exception. Sometimes, price will ignore the gap entirely or “fake-fill” it before reversing.
Example of a Failed FVG Setup:
Imagine price creates an FVG on the 15-minute chart during New York session. A trader expects a bounce when price returns to fill it. But instead, price blasts through the FVG and keeps falling, hitting their stop-loss.
Why It Might Fail:
- The FVG formed against the higher timeframe trend.
- No clear support/resistance or order block aligned with it.
- The fill happened during low-volume hours, reducing reaction strength.
Takeaway: Always use FVGs with confirmation—ideally confluence with structure, time of day, or volume.
Trading Fair Value Gaps: Entry Strategy

Here’s a step-by-step strategy to trade FVGs:
- Find the Gap: Look for a gap after an impulsive move.
- Wait for Price Return: Be patient for price to pull back to the gap.
- Watch for Entry Confirmation: Use a smaller timeframe for an entry signal (e.g., bullish engulfing candle).
- Set Stop Loss: Place your stop just below or above the gap zone.
- Target the Impulse High or Low: Ride price back to the origin of the move or beyond.
Combining this with other tools like volume profile or VWAP trading strategy can significantly increase your success rate.
Example Trade Setup
Imagine a strong breakout above resistance. Price shoots up, leaving a 10-point gap on the chart. You mark that gap. A few hours later, price revisits it. On a lower timeframe, you spot a hammer candle. You enter. The trade moves 3x your risk within the hour. That’s the power of an FVG.
Why Do Fair Value Gaps Work?
- They reveal institutional intent
- They are often liquidity magnets
- They offer clear entry zones
- They help define risk and reward
Many smart money and ICT-style traders use them to time precision trades with minimal risk.
Pro Tips for Trading Fair Value Gaps
- Use FVGs only in trending markets for best results
- Combine them with key support/resistance zones
- Use FVGs alongside candlestick patterns for strong confirmation
- Avoid chasing gaps during low volume sessions (like Fridays or post-lunch hours)
Common Mistakes to Avoid
- Jumping in too early
- Using them in choppy markets
- Ignoring context (macro trend, news events, etc.)
Fair value gaps are most effective when used as part of a broader system. Don’t make them your only tool. Blend them with price action, risk management, and confluence tools like stop loss orders and support/resistance.
Final Thoughts
Fair value gaps help you become a sniper in the markets. Instead of entering trades based on emotion or noise, you're entering where the pros do: in zones of institutional imbalance.
Study them. Mark them. Wait for them. They can transform your accuracy.
FAQs
Q1: Can FVGs appear on any chart timeframe?
Yes, but they’re most commonly used on intraday timeframes (like 15M, 1H) because of how frequent imbalances form during active sessions.
Q2: Do FVGs always get filled?
No. Many are filled, but not all. Some remain open indefinitely or get invalidated if price structure breaks.
Q3: Are FVGs the same as breakaway gaps?
No. Breakaway gaps are strong gaps that usually occur at the start of trends, often visible on daily charts. FVGs form during momentum moves and are more micro-structural.
Q4: How can I confirm a strong FVG?
Look for alignment with trend, session timing (e.g., London or New York), order blocks, or RSI divergence for added conviction.
If you found this article helpful, be sure to check out these deep-dive guides:
- How to Use Volume Profile in Trading
- Stop Losses – How to Use Stop Loss Orders Like a Pro
- Candlestick Patterns: Smart Guide for Beginners
Stay disciplined, and let the gaps guide you.