Fair Value Gaps have become one of the most discussed concepts in modern price action trading. Popularized by ICT (Inner Circle Trader) methodology, FVGs represent areas where price moved so aggressively that a gap was left in the candle structure—and these gaps often act as magnets for future price action.
What Is a Fair Value Gap?
A Fair Value Gap is a three-candle pattern where the wicks of the first and third candles don't overlap, leaving a gap in price. This gap represents an area where there was such aggressive buying or selling that price didn't trade at every level—creating an "imbalance."
To identify a bullish FVG:
- Look for a strong bullish candle (the middle candle)
- The low of the third candle should be above the high of the first candle
- The gap between them is your FVG zone
For bearish FVGs, simply invert the logic—the high of the third candle should be below the low of the first candle.
Why FVGs Matter
Markets tend toward efficiency. When price moves too quickly in one direction without properly "filling" all levels, it often returns to these areas. Think of FVGs as unfinished business—the market left something behind and frequently comes back to complete the transaction.
FVGs work because:
- Institutional orders: Large players who missed the initial move often have resting orders in these zones
- Price efficiency: Markets tend to fill gaps as part of natural price discovery
- Technical confluence: Many traders watch these levels, creating self-fulfilling reactions
Trading FVGs: The Basics
Entry Strategy
The most common approach is to wait for price to retrace into the FVG zone and look for a reaction. You're not blindly buying or selling—you're waiting for confirmation that the zone is being respected.
Stop Placement
Stops typically go beyond the FVG zone. If price fully fills the gap and continues through, the setup has failed. This gives you a defined risk level.
Target Setting
Initial targets often aim for the high/low that created the FVG. Extended targets can look at higher timeframe structure or the next significant liquidity pool.
FVG Quality Matters
Not all FVGs are equal. The best ones form during strong momentum moves, appear on higher timeframes (4H+), and align with the overall trend direction. A tiny FVG on the 1-minute chart in a ranging market is far less reliable than a clean FVG on the daily during a trending move.
FVGs and VLM
VLM incorporates Fair Value Gap analysis as part of its liquidity detection engine. When VLM identifies an FVG zone that aligns with other institutional footprints—like a liquidity sweep or order block—the probability of a successful trade increases significantly.
The key is confluence. An FVG alone is just a zone on your chart. An FVG that forms after a liquidity sweep, sits at a discount/premium level, and shows institutional accumulation on the volume profile? That's a high-probability setup.
Common FVG Mistakes
- Trading every FVG: Be selective. Context matters more than the pattern itself.
- Ignoring timeframe: Higher timeframe FVGs carry more weight than lower timeframe ones.
- No confirmation: Don't anticipate—wait for price to show its hand in the zone.
- Fighting the trend: FVGs work best when traded in the direction of the dominant trend.
The Bottom Line
Fair Value Gaps are powerful tools when used correctly. They represent areas of institutional activity and unfinished price action. Combined with proper context, trend alignment, and confirmation, they become high-probability entry zones that can significantly improve your trading edge.