Fair value gap (FVG) What it is: three candles and a gap, animated

What is a fair value gap?

Mark candle 1's high. Let candle 2 run. When candle 3 closes, check its low: above candle 1's high means a bullish gap, from that high to that low. The bearish gap mirrors it. The gap's halfway line is called CE, consequent encroachment.

Use it: measure wick to wick: candle 1's high against candle 3's low. Draw the gap only after candle 3 closes.

Watch out: bodies can leave a space while the wicks overlap. That's no gap. The film's "Not a gap" tab shows one.

Wick to wick, after candle 3 closes.

Bullish vs bearish FVG

Do fair value gaps always get filled?

No. A gap sits inside prices the market just traded, and markets retrace, so price often comes back. That's oscillation, not a magnet, and "it always fills" never says when. Filled gaps make good screenshots. The ones that never filled scroll off the chart.

When price does come back, three different things can happen. They mean different things.

• Partial fill: a wick enters the gap but doesn't reach the far edge.
• Full fill: a wick reaches the far edge, and the candle closes back.
• Close through: a candle closes beyond the far edge. The gap is gone.

Use it: before the trade, write down which one cancels it: a CE touch, a full fill or a close through.

Watch out: "filled" means different things on different sites and tools. Ask which one before you trust anyone's fill rate.

A wick fills a gap. Only a close ends it.

Yes. The shape is the same; the evidence isn't. A gap printed by the candles that closed beyond a swing records the move that broke structure. A gap in a range is a fast candle that broke nothing.

Use it: ask what made the gap: did one of its three candles close beyond a swing?

Watch out: a gap mid-range still passes the three-candle test. Nothing broke, so there's less behind it.

The same goes for location: a bullish gap below the 50% line of the leg that broke structure sits in discount, one above it in premium (premium and discount).

We haven't measured gaps split by structure. What our zone study did find: of the five factors it tested, the strongest was the size of the move that made the zone (what we measured).

When the first pullback after a break stops short of the gap the break left, that pullback's low is the inducement, and price has to take it before it can get back into the gap.

A gap that a candle closes through flips. A bullish gap closed below becomes a bearish inverse FVG (IFVG), watched as resistance from below. A bearish gap closed above becomes a bullish one. A close back beyond the gap's other edge ends it. It's the same flip a breaker block makes on an order block.

Use it: mark two closes: the one that inverted the gap, and the one that would end it, back beyond the other edge.

Watch out: a wick through the gap doesn't invert it. Only a later close does.

FVG vs order block vs imbalance

An order block is one candle: the last opposite candle before a break of structure. A fair value gap is a space between two candles. They can sit side by side: the order-block candle, then the fast candle whose gap follows it. Many traders say "imbalance" for the same three-candle gap, and "liquidity void" for a longer one-way run. Usage varies, so say which one you mean.

How to spot a fair value gap, step by step

1. Fix the timeframe and a minimum size before you look. SMC Basics uses 0.3 × ATR(14).
2. Find a fast candle 2.
3. Compare candle 1's high with candle 3's low (bullish) or candle 1's low with candle 3's high (bearish). Wicks, not bodies.
4. If they don't overlap, wait for candle 3 to close. Then draw the gap to the right, with its 50% CE line.
5. Check the context: did one of the three candles close beyond a swing?
6. Track it: first touch, how deep, full fill, close through.
7. A close beyond the far edge ends it. If you trade inversions, that same close starts the IFVG.

A gap can also be the trigger of a time-based setup. The ICT Silver Bullet trades only the first gap that forms inside one hour of the New York clock.

Which timeframe works best?

We haven't compared timeframes, so we can't name a best one. The rule is the same on every chart. Pick the timeframe before you look, and don't mix a 5-minute gap with a 4-hour one.

Common mistakes

1. Measuring body to body. Only the wicks count.
2. Drawing the gap before candle 3 closes. Until then, candle 3 can still trade back into it.
3. Trading "it will fill" with no deadline. Your stop has a price. Your patience needs a number too.
4. Calling a full fill a close through. A wick at the far edge that closes back hasn't ended the gap.
5. Treating every gap alike. One printed by a break and one in the middle of a range are different evidence.
6. Trusting gaps from dead hours. Around rollover, spreads widen on many brokers, and a thin market can print a gap that records no urgency at all.
7. Mixing timeframes.

Do fair value gaps work?

Measure your own fill rate

Twenty minutes, one chart, no indicator needed.

1. Define "filled" in writing: a CE touch, a full fill or a close through, and within how many candles.
2. Mark blind: scroll back three months on your instrument and timeframe. Mark every gap by the wick rule, the ugly ones too.
3. Count: filled within your deadline, or not? Split the count by context (with a break or without) and by first touch or later.
4. Price it: does a setup that frequent beat its costs with a stop you can actually hold?

Which tools draw fair value gaps?

On your own chart. SMC Basics draws fair value gaps with this page's rule: wick to wick, at least 0.3 × ATR(14), the last 3 per side, with the CE midline on by default. It removes a gap when a candle closes through the far edge, or keeps it as a grey outline if you turn ghosts on.

IFVG Desk, also in the library, draws the inversion from the last film: a later close strictly beyond the gap's far edge inverts it, and a close back beyond the other edge ends it. Its default minimum gap is smaller, 0.05 × ATR, and a gap expires after 180 candles.

Sweep Desk, a library desk too, uses the inversion as its default confirmation after a liquidity sweep: a candle closes through an opposing gap printed up to 40 candles before the sweep, and that inverted gap becomes the entry zone.

The SMC AI-Scored Toolkit (v1.4.2, $39 one-time, on its page) scores every gap of at least 0.25 × ATR from 0 to 100 when it forms, on five factors, and by default draws the 8 best-scored zones, gaps and order blocks together. Up to v1.4.1 a bug hid every gap at default settings; v1.4.2 draws them. That score is the one the study above tested, and it did no better than a shuffle there.

Disclosure

We build SMC Basics, IFVG Desk and Sweep Desk and sell them in Pine Pro Library; we also sell the SMC AI-Scored Toolkit. Nothing here is financial advice.