Trading term
What is Fair value gap (FVG)?
A fair value gap is a three-candle pattern where price moves so fast that the first and third candles' wicks don't overlap at all. That leaves an untraded band of prices in the middle, which traders mark and watch to see whether price returns to fill it.
Take any three consecutive candles. Normally the first candle's range and the third candle's range overlap — the market traded back and forth across the same prices. When a move is violent enough, they don't: candle one's high sits below candle three's low (in a rally), leaving a gap of prices that the middle candle rocketed through without any two-way trade. That untraded band is the fair value gap, sometimes called an imbalance.
The reasoning is that a price zone which the market blew through without properly transacting represents unfinished business, and markets often return to trade it before continuing. So traders mark the band, and if price drifts back into it they watch for a reaction — treating it much like a support or resistance zone with a precise, mechanically-defined boundary.
What makes an FVG unusually clean compared with most price-action concepts is that it is fully objective. Given three candles you can compute the gap exactly; there is no judgement about which swing counts or where to draw the rectangle. That doesn't make it predictive, but it does make it consistent from trader to trader.
Candle 1 tops at $52, candle 3 bottoms at $56 — they don't overlap, so $52–$56 was skipped entirely. That untraded band is the fair value gap.
For example
Three daily candles: the first has a high of $52, the second is a large green candle running from $52 to $59, and the third has a low of $56. Candle one's high ($52) is below candle three's low ($56), so $52–$56 is the fair value gap — a band the market skipped, which traders will watch if price pulls back.
Go hands-on in Premium
That's Fair value gap (FVG) in theory — it clicks when you read it on a live chart. Practise it hands-on in the TradeWize Premium Technical Analysis track.
Explore Premium →Why it matters to you
An FVG is one of the few price-action concepts with a precise definition rather than an eyeball judgement, which means it can be coded, backtested and applied identically every time. Practically it gives you a narrow, pre-marked pullback area to work with instead of guessing how deep a retracement will run — useful for placing a limit order and an adjacent stop before price gets there.
⚠ Not every gap gets filled, and 'eventually' isn't a plan
The claim that markets always return to fill imbalances is comforting and not reliably true — plenty of gaps in strong trends stay open for months or permanently. Worse, 'it will fill eventually' is exactly the reasoning that keeps traders in losing positions. If you trade an FVG, define how long you'll give it and where you're wrong, rather than waiting indefinitely for the chart to come back to you.