Fair Value Gaps (FVGs)

What is a Fair Value Gap?

A Fair Value Gap (FVG) is a three-candle pattern where the wicks of candle 1 and candle 3 don't overlap, leaving an imbalance (gap) in price.

Identification Rules

1. Look at three consecutive candles
2. Compare the high of candle 1 with the low of candle 3 (for bullish FVG)
3. If there's a gap between them — that's your FVG
4. The gap represents an imbalance where only one side of the market participated

Types of FVGs

• Bullish FVG: Gap above (candle 3 low > candle 1 high) — expect price to return down to fill
• Bearish FVG: Gap below (candle 3 high < candle 1 low) — expect price to return up to fill
• Consequent Encroachment (CE): The 50% level of the FVG — key reaction point

Trading FVGs

1. Identify the FVG on your entry timeframe (1m–15m)
2. Confirm bias with higher timeframe structure
3. Wait for price to return to the FVG
4. Enter at the FVG or CE level
5. Stop loss beyond the FVG
6. Target the draw on liquidity

When FVGs Fail

• When the higher timeframe is in strong opposition
• During news events that override technical levels
• When the FVG has already been partially filled (respected once, likely won't hold again)