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ConceptsFair Value Gap (FVG)

Fair Value Gap (FVG)

Hero pattern #2 of 3. The most-used Smart Money concept after Order Blocks.

What it is

A 3-candle pattern where price moves so fast that it leaves an “imbalance” between the wicks of candle 1 and candle 3 — the body of candle 2 is the impulse.

  • Bullish FVG: candle 1’s high is below candle 3’s low. The gap region is [candle_1.high, candle_3.low].
  • Bearish FVG: candle 1’s low is above candle 3’s high. Gap is [candle_3.high, candle_1.low].

What it tells you

The gap is where price moved without trading — institutional flow overwhelmed available liquidity. Markets have a tendency to revisit imbalances and “fill” them. An unfilled FVG is a magnet; a filled FVG is just history.

In our backtest, bullish FVGs on the 1h timeframe in the direction of higher-TF trend show hit rates of ~62% on liquid US equities with adequate sample sizes. Counter-trend FVGs are experimental.

Visual example

AAPL gaps up at the open, runs hard for 3 candles. The middle candle is a 2x-range green bar. The wick of the bar before the impulse and the wick of the bar after never overlap — that’s the FVG. Two days later, price retraces back into the gap and bounces off the lower boundary. Setup confirmed.

How to use it

  • Identify on a higher TF, trade reaction on a lower TF: mark daily FVGs, trade the bounce on 15m or 5m.
  • Confluence: FVG inside a discount zone (Premium/Discount array) of an active range = high-conviction.
  • Mitigation tracking: FVGs are “fresh” until price re-enters; the BlitzPulse zones table tracks status and retest count.

When NOT to trust it

  • Tiny FVGs (sub-1bp width) — these are noise on most stocks.
  • FVGs from extended hours (we exclude these by default).
  • FVGs on news-driven gaps where the gap is fundamental, not liquidity-driven.
Engulfing PatternICT / Smart Money Glossary (Cornerstone)