TL;DR
- An FVG is a three-candle imbalance — the wicks of candle 1 and candle 3 don't overlap.
- It marks a price range where auction was one-sided. Not a magnet, not a guarantee.
- Higher-timeframe FVGs (1H+) inside a clear draw on liquidity are the ones worth trading.
- Everything else is a test. Journal every FVG setup you take and let expectancy decide.
What a Fair Value Gap actually is
A Fair Value Gap — sometimes called a liquidity void or an imbalance — is a three-candle price pattern where the high of candle 1 is below the low of candle 3 (bullish FVG), or the low of candle 1 is above the high of candle 3 (bearish FVG). The middle candle's body / wick spans a range that never traded two-sided.
Structurally, that means the market moved so aggressively in one direction that opposing orders never had time to fill. The unfilled range is an inefficiency: an area where price, at least statistically, is more likely to be revisited than a range that saw normal two-sided auction.
Why FVGs form: the order-flow story
FVGs are a footprint of urgency. They typically appear when:
- A resting pool of liquidity gets swept and price accelerates through the opposite side.
- A news release or macro catalyst forces one-sided market-order flow.
- A stop cascade triggers as price breaks a well-watched level (prior day high / low, session high, equal highs).
In ICT and Smart Money Concepts (SMC) language, the FVG is framed as institutional order flow leaving an inefficiency behind. You don't need to accept the narrative to use the pattern. What matters is the mechanical fact: a range with no two-sided trade often acts as a reaction zone on a return visit.
How to identify an FVG in three steps
1. Find impulsive moves, not chop
Scan for candles with a body at least 1.5× the recent average range. FVGs formed inside compression rarely respect themselves. FVGs formed after a liquidity sweep — an obvious wick through a prior high or low — are the ones with real information.
2. Confirm the wick separation
On the three-candle sequence, mark the top of candle 1's wick and the bottom of candle 3's wick. If there is a gap between them, that gap is the FVG. Draw it as a zone, not a line. The zone boundaries are your reference for entry, invalidation, and target.
3. Anchor to a higher-timeframe bias
A bullish FVG on the 5-minute chart is worthless if the daily is in a clean bearish trend and price is rotating into a prior supply zone. Set your bias on the 4H or Daily. Take FVGs only in that direction, or explicitly log counter-trend FVGs as a separate strategy so you can measure them independently.
Trading FVGs: entries, stops, targets
Entry models
- 50% mean-threshold entry. Limit order at the midpoint of the FVG. Highest RR, lowest fill rate — many FVGs react before touching mid.
- Distal (full-fill) entry. Limit at the far edge of the FVG. Better fill rate, worse RR, and you eat drawdown while price wicks into the zone.
- Confirmation entry. Wait for a lower-timeframe structure shift (BOS / CHoCH) inside the FVG, then enter on the pullback. Best win rate, worst average RR because your stop widens.
Stops
A useful default: stop one tick beyond the opposite side of the FVG plus a small buffer for spread. If your stop needs to sit outside the swing that created the FVG, the trade is not an FVG setup — it's a swing trade using an FVG as an excuse.
Targets
Draw the next opposing liquidity pool — equal highs / lows, prior session high / low, obvious wicks — before you enter. That is your target. If there is no clean liquidity within a reasonable RR, skip the trade. FVGs don't print money; the trip from FVG to the next liquidity pool does.
When an FVG is invalid
A common mistake is treating every unfilled FVG as a live setup forever. Rules that hold up in testing:
- If price fully trades through the FVG and closes on the far side on your working timeframe, the FVG is consumed. Don't re-enter it.
- If the higher-timeframe bias flips (a clean daily BOS against you), stand down on FVGs in the old direction.
- If the FVG is older than N sessions (measure your own N — typically 3–10 depending on timeframe), treat it as stale until confirmed by a fresh sweep.
The four mistakes that kill FVG traders
- Trading every FVG on the 1-minute without a higher-timeframe bias. Noise, not edge.
- Assuming FVGs must fill. Many don't. Trade the reaction, not the fill expectation.
- Widening stops to survive. If the FVG needed to be twice as wide, it wasn't the FVG that worked — it was luck.
- Not journaling FVG setups separately. Mixed with other strategies, FVG expectancy is invisible.
How to prove FVGs are an edge in your book
Any pattern in trading is a hypothesis until your own data confirms it. This is what Ledger Journal is built for: you tag each trade with the setup, and the app tracks win rate, expectancy, avg RR, and behavior around it. For FVGs specifically:
- Create a FVG tag, plus sub-tags for entry model (
fvg-mid,fvg-distal,fvg-confirm) and timeframe (fvg-1h,fvg-4h). - Screenshot the FVG at entry and at exit. Attach both to the trade.
- Log whether higher-timeframe bias was aligned. This one field will separate your winning FVGs from your losing ones faster than any other filter.
- After 30 tagged trades, open the analytics view. If expectancy is negative or the win rate collapses in a specific sub-tag, cut it.
The Trader DNA and Behavioral Edge views in Ledger will also flag whether you're revenge-trading FVGs after a loss, or over-sizing them into news — the two behaviors that most quietly turn a profitable pattern into a losing one.
FVG checklist (steal this)
- Higher-timeframe bias identified and written down before the session.
- Liquidity sweep or clean impulse candle preceding the FVG.
- FVG drawn as a zone on the chart, not eyeballed.
- Entry model chosen in advance (mid / distal / confirmation).
- Stop sits inside the swing that formed the FVG, plus spread buffer.
- Opposing liquidity target visible on the chart with acceptable RR.
- Trade logged with FVG tag, timeframe tag, and entry-model tag.
Track your FVG edge
Journal every FVG trade. Let the numbers, not the narrative, decide.
Ledger Journal tags every trade, groups them by setup, and shows expectancy, RR, and behavioral drift over time. Free to start. Pro from $19/mo.
FAQ
What is a Fair Value Gap?
A three-candle imbalance where the wick of candle 1 does not overlap the wick of candle 3, leaving an untraded price zone on candle 2. It marks a range where price moved too quickly for two-sided auction.
Do Fair Value Gaps always get filled?
No. Some fill within hours, others remain unfilled for weeks, and some never fill within a relevant horizon. Trade the reaction; don't assume the fill.
What timeframe is best for trading FVGs?
Higher-timeframe FVGs (1H, 4H, Daily) are more reliable as reaction zones. Lower-timeframe FVGs are useful for entry precision after the higher-timeframe bias is set.
How is an FVG different from an order block?
An order block is the last opposing candle before an impulsive move. An FVG is the imbalance created by that impulsive move. They often appear together — the order block is the origin, the FVG is the footprint.