Fair Value Gap

The Fair Value Gap (FVG) is a three-candle price imbalance that forms when an impulsive middle candle moves so aggressively that the surrounding candles’ wicks do not overlap, leaving a zone where price was never efficiently traded. Rooted in ICT (Inner Circle Trader) methodology, it signals that institutional orders drove price through a range too quickly for the market to achieve two-sided efficiency. This page covers FVG anatomy, classification, fill statistics, and journaling. For entry triggers, stop placement, and position sizing, see the Fair Value Gap trading strategy.

FVG Anatomy: The Three-Candle Structure

A Fair Value Gap is defined entirely by its three-candle structure:

• Candle one — the candle immediately before the impulse. Its high (in a bullish FVG) marks the lower boundary of the gap zone.
• Candle two — the impulse candle. A strong, large-bodied candle with minimal wicks relative to its body. This is the move that creates the imbalance.
• Candle three — the first candle after the impulse. Its low (in a bullish FVG) marks the upper boundary of the gap zone.

The FVG itself is the price range between candle one’s high (lower boundary) and candle three’s low (upper boundary). When price later retraces downward into a bullish FVG, it hits the upper boundary — candle three’s low — first. This is the premium retest level where institutional demand is most likely to hold before price resumes higher.

Bullish vs Bearish Fair Value Gap

Bullish FVG — Forms after a strong upward impulse. The gap sits below current price. Upper boundary: candle three’s low. Lower boundary: candle one’s high. On retracement, price enters the zone from the top and may find demand before resuming higher.

Bearish FVG — Forms after a strong downward impulse. The gap sits above current price. Lower boundary: candle three’s high. Upper boundary: candle one’s low. On retracement, price enters the zone from the bottom and may find supply before resuming lower.

Both types represent the same structural phenomenon — an imbalance created by institutional order flow that the market may revisit to achieve more efficient two-sided trading.

How to Identify a Fair Value Gap

1. Find a three-candle impulsive sequence — The move should feel sudden, not gradual, and ideally forms during a high-volume session like London open or New York open.

2. Confirm no wick overlap — For a bullish FVG, candle one’s high must be strictly below candle three’s low. If the wicks touch or overlap at any price, there is no FVG. Measure the gap precisely: lower boundary is candle one’s high, upper boundary is candle three’s low.

3. Classify direction — A bullish FVG sits below current price after an upward impulse. A bearish FVG sits above current price after a downward impulse.

4. Measure gap size in pips — On the 1-hour chart, gaps under 10 pips fill too quickly to produce a workable retest. On the 4-hour chart, look for gaps of 20 pips or more. Small gaps lack the structural significance that makes FVGs useful.

5. Check volume on candle two — Institutional-driven FVGs typically show the impulse candle at 2x or more above the 20-bar average volume. High-volume FVGs have meaningfully higher fill-and-reject rates than low-volume ones.

Fill Rates and Reliability

Based on documented ICT trader research and community back-testing:

Timeframe	Fill Rate (within 24h)	Notes
15-minute	~45–50%	High noise; requires tighter filtering
1-hour	~52–58%	More consistent; minimum 10-pip gap recommended
4-hour	~60–68%	Most reliable; core FVG trading timeframe
Daily	~60–68%	Strong fill probability; slower to develop

Fill rates are highest when the FVG forms during the Asian or early London session and price retraces during the New York session — the highest-liquidity overlap window. FVGs formed during major news events have lower fill rates because the institutional imbalance may be intentional and sustained.

Trending markets leave many FVGs open for days or weeks. A strong bull trend may print several bullish FVGs that remain unmitigated as price pushes relentlessly higher — these unfilled gaps often act as magnets on eventual pullbacks.

Fair Value Gap vs Price Gap

Feature	Fair Value Gap	Traditional Price Gap
Candles involved	Three candles	Two candles
Occurrence	Within regular trading hours	Overnight, weekend, or news event
Trading activity	Price moved through the zone rapidly	No trading occurred in the zone at all
Origin concept	ICT methodology	Classical technical analysis
Fill behavior	Frequently retested within hours/days	May go unfilled for weeks

A traditional price gap (like an overnight gap on EUR/USD at market open) has no transactions in the gap range. An FVG does have transactions — price traded through the zone — but so quickly and one-sidedly that the market did not achieve efficient two-way order matching.

Identification Example: EUR/USD 4-Hour

On a 4-hour EUR/USD chart during London session, three candles form a bullish FVG:

• Candle one: High of 1.0820
• Candle two (impulse): Strong bullish, runs from 1.0820 to 1.0885
• Candle three: Opens at 1.0885, closes at 1.0870, low of 1.0862

FVG zone: lower boundary at 1.0820 (candle one’s high) to upper boundary at 1.0862 (candle three’s low) — 42 pips wide.

Price continues higher to 1.0920. During the New York afternoon session, price pulls back toward the FVG. The upper boundary at 1.0862 is the first level price touches on retracement — the premium retest zone. The lower boundary at 1.0820 represents the maximum fill point: if price closes below 1.0820, the entire FVG has been mitigated and the imbalance thesis is resolved.

A stop placed below 1.0820 at 1.0815 risks 47 pips (entry 1.0862 − stop 1.0815). On a $25,000 account risking 1% ($250), position size is approximately 0.53 lots ($250 ÷ 47 pips ÷ $10/pip). With a target near 1.0940, the reward is approximately 78 pips — a 1.66:1 risk-reward ratio.

For full entry trigger rules, position sizing, and exit management, see the Fair Value Gap strategy page.

Common Identification Mistakes

1. Measuring boundaries incorrectly — The lower boundary is candle one’s high; the upper boundary is candle three’s low. Confusing these inverts the stop and entry logic entirely. Always draw horizontal lines at both levels before analyzing the setup.

2. Accepting partial wick overlap — If candle one’s high touches candle three’s low at even a single pip, there is no FVG. The wicks must be completely non-overlapping. A near-miss is not a valid pattern.

3. Treating small gaps as valid — A 5-pip FVG on the 1-hour chart fills within 1–2 candles and offers no tradeable retest. Apply minimum gap size filters by timeframe.

4. Confusing FVGs with ordinary gaps — Traditional overnight gaps are not FVGs. The three-candle structure and intraday formation are what define the pattern. A weekend gap on a chart does not qualify.

5. Counting non-impulsive candles — The middle candle must be large and impulsive relative to surrounding candles. If candle two’s body is similar in size to the surrounding 10–20 candles, the imbalance is not institutional in nature.

How to Journal Fair Value Gap Trades

Journal Field	What to Record	Why It Matters
Pattern Type	Fair Value Gap — Bullish or Bearish	Filter and compare FVG performance separately by direction
Timeframe	15m / 1H / 4H / Daily	Identify which timeframe produces the best R:R for your style
Gap Size (pips)	Exact pip distance from candle one’s high to candle three’s low	Discover minimum gap size threshold for your profitable setups
Volume Ratio	Middle candle volume vs 20-bar average	Track whether high-volume FVGs outperform low-volume ones
Entry Location	Upper boundary / Middle of gap / Lower boundary	Reveal which entry precision produces the best outcomes
HTF Bias	Bullish / Bearish / Neutral	Confirm whether trend alignment improves win rate
Fill Depth	How far into the FVG price penetrated before rejecting	Optimize future stop placement and entry timing
Session	London / New York / Asian / Overlap	Identify which session produces the most reliable FVG retests

After logging 50 or more FVG trades with these fields, patterns emerge — such as whether 4-hour FVGs with volume ratios above 2.5x produce meaningfully higher win rates, or whether entries at the upper boundary versus the midpoint change average R. PipJournal’s tagging system lets you filter by all of these fields simultaneously, turning raw trade data into a precise playbook for this specific setup.

The liquidity sweep often precedes FVG formation on lower timeframes — price sweeps a prior high or low to trigger stops, then the strong reversal creates the impulse candle that forms the gap. Logging whether your FVG was preceded by a sweep reveals whether this confluence significantly improves fill-and-reject rates.