Last updated: September 27, 2026 · 10 min read
Fair Value Gaps are three-candle patterns in which the first and third candle wicks do not overlap. Learn how traders label them and why they do not reveal institutional activity or predict whether price will return.
A Fair Value Gap (FVG) is a charting label for a three-candle pattern where the first and third candle wicks do not overlap, often around a comparatively large middle candle. Calling it an “imbalance” does not establish that normal two-sided trading failed to occur.
When price moves quickly, the first and third candles in a three-candle sequence may not overlap. Traders call the resulting visual area an imbalance, but ordinary candles do not show that an institution entered, that no meaningful trading occurred, or that the market will revisit it.
FVG theory sometimes attributes later revisits to markets seeking equilibrium or “rebalancing order flow.” That is an interpretation, not a mechanism observable in OHLCV: candles cannot reveal hidden orders, participant identity, intent, or a return probability. You can see rule-defined FVGs highlighted on our SMC Chart Tool.
Traders label FVGs when three consecutive candles meet a non-overlap rule; the pattern does not identify aggressive buyers or sellers:
Candle 1 (the setup): Normal price action. This candle establishes the starting point. Its high (for bullish FVG) or low (for bearish FVG) forms one boundary of the potential gap.
Candle 2 (the impulse): A large candle relative to its neighbors creates the visual gap between candles 1 and 3. Traders may call this displacement, but the pattern alone does not identify institutional order flow, participant intent, or whether price will revisit the gap.
Candle 3 (completing the pattern): Its low (for a bullish label) or high (for a bearish label) forms the other boundary. If its wick does not overlap candle 1's wick under the chosen rule, the FVG label is complete; no future reaction is confirmed.
The gap between candle 1's high and candle 3's low (bullish label), or candle 1's low and candle 3's high (bearish label), is the FVG zone. OHLCV does not show whether trading was “balanced,” and the geometry supplies no known return probability.
Key Takeaway
An FVG is a rule-defined non-overlap between the first and third wicks in a three-candle sequence. “Imbalance” is SMC terminology; the pattern does not reveal order flow or imply that price will fill it.
Bullish FVG: Labels a non-overlap between candle 1's high and candle 3's low during an upward move. Some traders monitor it as possible support, but a revisit may bounce, consolidate, or continue through; the chart cannot show that an imbalance attracts buyers.
Bearish FVG: Labels a non-overlap between candle 1's low and candle 3's high during a downward move. Some traders monitor it as possible resistance, but the pattern neither shows sellers re-engaging nor prescribes a short entry.
Some rubrics score a larger middle candle or an accompanying Break of Structure more highly. These overlapping chart conditions do not create structural confirmation, a more powerful entry, or a known probability of success.
Step 1: Look for large impulse candles. Scan your chart for candles that are significantly larger than the surrounding ones. These are the middle candles of potential FVGs.
Step 2: Check wick overlap. Look at the candles immediately before and after the impulse candle. If their wicks overlap (even slightly), there is no FVG. If there is a gap between the wicks, you have found an FVG.
Step 3: Mark the zone. Draw the non-overlap between the two wicks. For bullish labels, this is from candle 1's high to candle 3's low. Some conventions also mark the 50% midpoint; OHLCV does not establish that it is the most reactive point.
Step 4: Track later overlap consistently. A rule may distinguish open, partly filled, and fully filled zones and stop displaying a zone after full overlap. “Active” or “no longer relevant” are rule settings, not observed order states.
Midpoint reference. Some SMC rules call the FVG midpoint “CE” (Consequent Encroachment) and test limit orders there. Price may not reach it or may pass through it; no bounce probability follows from the midpoint.
Compare with other labels. Some traders filter FVGs by a demand-zone or BOS label. Because these may derive from the same prices, “confluence” does not establish independence, effectiveness, or a higher probability.
Invalidation reference. A hypothetical rule may place an invalidation level beyond the FVG. Trading through the area can invalidate that specified pattern thesis, but it does not prove an imbalance was resolved; stops can slip or gap.
Target reference. Some plans reference an opposing FVG, zone, or swing and compare planned reward with risk. A 2:1 threshold is a selectable rule, not a guarantee that the target is reached or the approach is profitable.
Example
Illustrative only: suppose TSLA's candle 1 high is $242 and candle 3 low is $252, producing an FVG label with a $247 midpoint. A hypothetical plan references $247 for entry, $240 for invalidation, and $268 as a possible target. This constructed example does not imply that an order fills or a target is reached. See TSLA's stock analysis for current data.
Assuming every FVG has the same meaning. Size, timeframe, trend, and level filters define different rule sets. None has an inherent success rate; compare fully specified rules on relevant out-of-sample data before drawing conclusions.
Expecting every FVG to fill. FVGs may fill, partly fill, or remain open within the observation period. There is no universal “most fill” rate, including around earnings. Check the earnings calendar for scheduled event risk.
Leaving trend treatment undefined. Some rules require FVG and higher-timeframe swing direction to align. Alignment is a filter, not confirmation or evidence of better outcomes.
No risk plan. Any FVG label can be crossed without a bounce. A trader can define maximum acceptable loss, position size, and strategy-specific invalidation in advance; stops may gap or slip. Use our Average Down Calculator to examine scaling arithmetic.
Our SMC Chart Tool automatically detects and highlights Fair Value Gaps on any stock or crypto chart. It marks the FVG zone, the 50% level, and whether the gap has been filled or remains open. Combined with BOS/CHoCH labels and demand zones, it gives you a complete view of market inefficiencies.
FVG analysis can be considered alongside fundamental analysis and delayed institutional holding reports. Neither confirms that an FVG will act as support or establishes a probability of success.
Enter any stock or crypto ticker to see automatically detected FVGs, demand zones, BOS/CHoCH events, and more on an interactive chart.
Open the SMC Chart Tool →