Fair ValueGap

A fair value gap (FVG) is one of the most powerful price action concepts in modern trading. It identifies zones where price moved so aggressively that a visible imbalance was left on the chart — a gap between the wicks of consecutive candles that price tends to revisit. Originally popularized by ICT (Inner Circle Trader) methodology, FVGs have become a staple tool for institutional and retail traders alike.

• An FVG is a three-candle price imbalance where the middle candle’s range exceeds the surrounding wicks
• Bullish FVGs act as support zones; bearish FVGs act as resistance zones
• Price revisits (fills) approximately 60-70% of FVGs, making them high-probability trade entries

How Fair Value Gaps Form

An FVG requires three consecutive candles:

Bullish Fair Value Gap

Candle	Role	What to Look For
Candle 1	Setup	Any candle — note its high
Candle 2	Impulse	Large bullish candle that drives price up aggressively
Candle 3	Continuation	Opens and trades higher — note its low
FVG Zone		The gap between Candle 1’s high and Candle 3’s low

The FVG exists when Candle 3’s low is higher than Candle 1’s high. The space between them is the imbalance — no trading occurred in this zone because price moved too fast.

Bearish Fair Value Gap

Candle	Role	What to Look For
Candle 1	Setup	Any candle — note its low
Candle 2	Impulse	Large bearish candle that drives price down aggressively
Candle 3	Continuation	Opens and trades lower — note its high
FVG Zone		The gap between Candle 1’s low and Candle 3’s high

The FVG exists when Candle 3’s high is lower than Candle 1’s low.

Why FVGs Matter

Markets seek efficiency. When price moves too fast in one direction, it leaves behind an inefficient zone where buy and sell orders didn’t properly match. The market tends to revisit these zones to “fill” the imbalance before continuing the trend.

This makes FVGs valuable for:

• Entry timing: Enter pullback trades when price revisits the gap
• Stop placement: Place stops just beyond the FVG boundary
• Target identification: Unfilled FVGs above or below price serve as magnet targets

Trading Strategies for Fair Value Gaps

Strategy 1: FVG Retest Entry

The most common approach:

1. Identify an FVG on a higher timeframe (daily or 4-hour)
2. Wait for price to retrace into the FVG zone
3. Enter in the direction of the original impulse candle
4. Place stop loss below the FVG (bullish) or above the FVG (bearish)
5. Target the next swing high/low or opposing FVG

Strategy 2: FVG + Order Block Confluence

When an FVG overlaps with an order block, the zone becomes significantly stronger:

1. Identify both the FVG and the last opposing candle before the move (order block)
2. Mark the overlapping zone — this is your high-probability entry
3. Enter when price reaches this confluence zone with a tight stop

Strategy 3: FVG Fill and Continue

Some FVGs only partially fill before price continues:

1. Identify a strong trend with an FVG
2. Watch for price to wick into the FVG zone (touching the 50% level)
3. Enter on the 50% fill (known as the “consequent encroachment”)
4. This offers a tighter stop and better R:R than waiting for a full fill

Real-World Examples

NIFTY 50 — Bullish FVG

NIFTY drops to 21,800 and forms three candles: Candle 1 closes with a high of 21,900. Candle 2 is a massive bullish engulfing to 22,300. Candle 3 opens at 22,250 with a low of 22,100. The bullish FVG zone is 21,900 to 22,100. When NIFTY pulls back to 22,050 two days later, the FVG acts as support, and price bounces to 22,600.

AAPL — Bearish FVG

After earnings, AAPL drops from $195. Candle 1’s low is $193. Candle 2 crashes to $186. Candle 3 opens at $187 with a high of $190. The bearish FVG is $190 to $193. When AAPL rallies back to $191.50 the following week, it stalls in the FVG zone and reverses back down to $184.

SPY — Unfilled FVG as Target

SPY creates a bullish FVG at $520-$523 during a strong breakout. Price runs to $535 but an unfilled bearish FVG sits at $538-$540 from a previous selloff. Price reaches $538 and reverses — the unfilled FVG acted as a magnet target and resistance zone.

Common FVG Mistakes

1. Trading every FVG — Not all FVGs are worth trading. Focus on FVGs on the daily and 4-hour charts that align with the overall trend direction.

2. Expecting all FVGs to fill — Strong trend FVGs on higher timeframes may never fill. Don’t fight a strong trend waiting for a fill.

3. Ignoring context — An FVG in a ranging market means something different than an FVG at a major breakout level. Always consider market structure.

4. Setting stops inside the FVG — Your stop must be beyond the full FVG boundary. If the entire gap is violated, the setup is invalidated.

5. Using FVGs alone — FVGs are most powerful when combined with other confluence factors: order blocks, support/resistance levels, or moving averages.

Quick Reference: Bullish vs Bearish FVG

Characteristic	Bullish FVG	Bearish FVG
Forms during	Upward impulse move	Downward impulse move
FVG zone location	Below current price	Above current price
Acts as	Support on retest	Resistance on retest
Entry direction	Long (buy) on pullback	Short (sell) on rally
Stop placement	Below FVG low	Above FVG high
Invalidation	Price closes below FVG	Price closes above FVG

FVG Timeframe Reliability

Timeframe	Reliability	Best For
Weekly	Highest	Swing and position traders
Daily	Very high	Swing traders, most reliable for fills
4-Hour	High	Day and swing traders
1-Hour	Moderate	Intraday traders
15-Minute	Lower	Scalpers (more noise)
5-Minute	Lowest	Not recommended unless combined with higher TF confluence

How JournalPlus Helps

Tracking FVG-based trades in your journal reveals whether this setup actually works for you. Many traders assume FVGs are profitable because the concept is popular, but without data, they’re guessing.

JournalPlus lets you tag trades by setup type — label your FVG entries and track win rate, average R:R, and profitability specifically for this pattern. After 30-50 FVG trades, you’ll know your actual fill rate, which timeframes work best for you, and whether FVGs at confluence zones outperform standalone FVGs. That’s how you turn a concept into a proven edge.