A Fair Value Gap (FVG) is a three-candle price gap. The middle candle moves so hard in one direction that it leaves a zone, between the wick of the candle before it and the wick of the candle after it, where price never actually traded. The middle candle simply jumps over that range, with no buyers and sellers competing for price inside it.
How it forms, candle by candle
You need exactly three consecutive candles for an FVG to exist:
| Candle | Role |
|---|---|
| 1st (before) | Its high or low marks one edge of the gap |
| 2nd (middle) | The impulse candle. Its large body is what separates the 1st candle from the 3rd |
| 3rd (after) | Its high or low marks the other edge of the gap |
An FVG is bullish when the low of the 3rd candle sits above the high of the 1st. Price rose so fast that it never traded inside that range. It's bearish when the opposite happens: the high of the 3rd candle sits below the low of the 1st.
Spotting FVGs by eye on a live chart, one candle at a time, teaches you far less than watching them form and get filled in a replay you can pause, rewind and run again.
See plansWhat it means when an FVG is "mitigated"
An FVG stays active until price comes back to that zone. At that point, traders say it has been mitigated (or filled), either fully or partially, depending on how much of the gap price covered. The logic is simple: since nobody traded there when the gap formed, price has "unfinished business" in that zone before it can move strongly in either direction. That's why many traders who follow Smart Money Concepts (SMC), an approach that tries to read the footprints of banks and big funds on the chart, use an unmitigated FVG as an entry zone, while one that has already been mitigated is much less useful as a reference.
How long an FVG takes to get mitigated, and whether it actually happens before your trade has closed for some other reason, is exactly the kind of information no theory article can give you. It depends on the instrument, the timeframe and the trend context when the gap formed.
Where the term comes from
The name describes the idea behind it. The market moved through that range so quickly that buyers and sellers never settled on a "fair value" there, so a gap was left in the price record. The term was popularized by ICT (Inner Circle Trader) and spread with the rest of the Smart Money Concepts vocabulary. Today most traders just say "FVG," and you'll also hear "imbalance" used for the same thing. Knowing what the name means helps you remember why the zone matters. It doesn't tell you whether trading it gives you an edge, though. Only testing can do that.
You can explain a concept in a paragraph. You really learn it after watching it form and get filled a few hundred times.
See plansHow to use backtesting to check if it gives you an edge
Reading about FVGs doesn't tell you whether, on your pair and your timeframe, that zone actually improves your entries. The only way to find out is to mark dozens of real trades on replayed historical data and measure the results:
- How many FVGs get fully mitigated before price continues in the original direction of the impulse candle.
- Whether entering right as price touches the edge of the gap gives you a better risk/reward ratio (how much you stand to gain for every dollar you risk) than entering at the midpoint of the zone.
- Whether pairing the FVG with higher timeframe structure (a premium or discount zone, for example, meaning the expensive upper half or the cheap lower half of a range) filters your entries better than using it on its own.
Trade & Repeat's Fair Value Gaps indicator detects these gaps automatically on the historical data you're replaying and fades out zones that have already been mitigated. That way you can check your own manual read against the automatic detection as you move forward one candle at a time.
Common mistakes when trading FVGs
- Trading every FVG without looking at market structure. A gap inside a strong trend doesn't behave like one inside a sideways range.
- Ignoring the higher timeframe. An M5 FVG inside an H4 premium zone is not the same signal as the same gap sitting right at equilibrium (the midpoint of the range).
- Waiting for a 100% fill. Many valid entries happen with only a partial fill. Insisting that price touch the exact edge of the gap rules out entries that would otherwise have worked.
If you're coming from our overview of Smart Money Concepts, remember that the FVG is just one piece. Structure, liquidity and premium/discount zones make up the rest of the framework.
Frequently asked questions
- What does FVG mean in trading?
- FVG stands for Fair Value Gap: a three-candle price gap that never got traded. It sits between the wick of the first candle and the wick of the third, because the middle candle moved so hard in one direction that it skipped over that range.
- Why is it called a "fair value" gap?
- The idea is that the market moved so fast through that range that buyers and sellers never got a chance to agree on a fair price there. The gap marks that missing price discovery, which is why many traders expect price to come back and fill it at some point.
- Is an FVG the same as an imbalance?
- In practice, traders use the two terms interchangeably. "Imbalance" describes the lopsided buying or selling that created the gap; "FVG" describes the price zone it left behind. It's the same thing seen from two angles.
- Do all FVGs eventually get filled?
- No. An FVG can stay unfilled for a long time, especially if price keeps trending hard in the same direction that created it. How long a gap takes to fill (and whether it fills before your trade has closed) is exactly the kind of data a real backtest reveals and a rule written in a PDF doesn't.
- Which timeframe should I look for FVGs on?
- It depends on your style. The most common approach in Smart Money Concepts is to spot the FVG on a higher timeframe (H4 or H1, for example) and then look for a precise entry on a lower one (M15 or M5) inside that same zone.
- Is an FVG the same as an order block?
- No, although they often show up together. An order block is the last opposite-colored candle before a strong move, the area where large institutions may have placed their orders. The FVG is the gap that same move leaves behind. It's common to see an order block right at the edge of an FVG, but they're two separate ideas within Smart Money Concepts.
- Does Trade & Repeat have a built-in FVG indicator?
- Yes. You add the Fair Value Gaps indicator from the indicators panel. It automatically detects three-candle gaps on the historical data you're replaying and fades out the zones that have already been filled, so you can compare your own manual read with the automatic detection.
Keep reading: Backtesting Smart Money Concepts (SMC): FVG, CHoCH and Premium/Discount · How to backtest a forex strategy step by step · How to read your backtesting statistics
Educational content only; it is not financial advice. Trading financial markets involves the risk of losing capital.