The idea
A fair value gap (FVG) is a three-candle pattern. The middle candle moves so far that the wicks of the candles on either side do not overlap, leaving a gap in the price range where little traded.
ICT traders treat that gap as a zone price often revisits. After a bullish gap, they wait for price to come back into it and buy there, with the stop under the candle before the gap.
Watch it play out
Step by step
The rules
Setup
- Three candles where the first candle's high is below the third candle's low (bullish gap).
- The middle candle is a strong move (displacement).
Entry
- A limit buy at the top of the gap, for the first return into it.
Stop-loss
- Under the low of the candle before the gap.
Target
- The last high, or 2R.
Filters that help
- Gaps that form after a sweep of liquidity or in the direction of the higher-timeframe trend are the ones usually traded.
- If price closes through the whole gap, the setup is void.
Why it can work
A gap marks a one-sided burst: buyers lifted price faster than sellers could meet them. When the burst ends, price often drifts back to trade the area it skipped, and if the buyers behind the burst are still there, the gap can hold as support.
Worked example
On MNQ a strong candle leaves a gap 12 points tall. A buy limit goes at the top of the gap, with the stop 20 points lower, under the candle before the gap: $40 of risk per contract.
With $100 at risk, two contracts fit ($80). A 2R target sits 40 points above the entry.
When it works, when it fails
Works best
In fast, one-directional sessions where the gap forms in the direction the market is already going.
Struggles
In choppy markets, where gaps form everywhere and fill completely. Many gaps are filled and then broken.
Common mistakes
- Trading every gap on a 1-minute chart.
- Ignoring the direction of the higher timeframe.
- Entering on the touch without a stop placed beyond the structure.
Variations
- Consequent encroachment
- Entering at the middle of the gap instead of its edge, for a better price and fewer fills.
- Inverse FVG
- A gap that price closes through, then treated as a zone from the other side.
- Gap after a sweep
- Only gaps that form in the move away from a liquidity sweep, which ties the entry to a reason rather than to any fast candle.
What the evidence says
Evidence: Popular, untestedWidely used, but no rigorous public testing. An idea to test yourself.
Smart Money and ICT concepts are among the most popular ideas in trading education right now, especially on YouTube and TikTok, but there is no rigorous public study showing their entries have an edge after costs.
Part of the reason is that the rules leave room for judgement, so the same chart can be read two ways. Treat it as a framework to write down precisely and test on your own records, not as a proven method.
Questions
- What is a fair value gap?
- A three-candle pattern where the middle candle moves so fast that the first and third candles' wicks do not overlap, leaving a gap in traded prices.
- Do fair value gaps always get filled?
- No. Many get partly or fully filled, some never are, and many that are filled then break. Treat 'gaps fill' as a tendency to test, not a rule.
- Is an FVG the same as an imbalance?
- Traders use the two words for the same pattern. A volume imbalance is a related but narrower idea about the bodies of the candles.
- Which timeframe should I find fair value gaps on?
- Gaps appear on every timeframe. A common approach is to read the direction from gaps on the one-hour or four-hour chart and take entries from gaps on the one to five minute chart, in the same direction.