Ecosystem Academy · Price Action
Fair Value Gaps Explained: The Imbalance Price Keeps Coming Back To
The fair value gap is the core building block of "smart money" style trading. It's simple to spot, easy to backtest, and — used with discipline — a clean way to time entries. Here's what it actually is, without the mystique.
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1. What a fair value gap is
A fair value gap (FVG) — also called an imbalance — is a three-candle pattern. When the middle candle moves so hard that its range doesn't overlap with the candles before and after it, a "gap" is left behind: a price range that was only traded through once, in one direction.
The idea is that aggressive moves skip price levels where business should have been done. Markets tend to come back and "rebalance" those levels before continuing — and that revisit is where traders look to enter.
2. How to spot one in 10 seconds
Bullish FVG
Die low of candle 3 is above the high of candle 1. The space between them is the gap — a zone where buyers overwhelmed sellers.
Bearish FVG
Die high of candle 3 is below the low of candle 1. The space between is where sellers took control.
Mark the gap as a rectangle from candle 1's wick to candle 3's wick. That's your zone. No indicators required.
3. Why price revisits gaps
Two practical reasons, no magic involved:
- Unfilled orders. A violent move leaves resting orders and late entrants behind. When price returns, that queued interest trades — often bouncing the zone.
- Profit-taking and re-entry. Traders who rode the impulse take profits into the pullback; traders who missed it enter on the retracement. Both flows meet inside the gap.
Gaps that align with the higher-timeframe trend, and gaps created during high-volume sessions (London/New York), tend to be respected more often than gaps formed in dead, low-volume hours.
4. A simple FVG entry model
- Establish direction on the 1H or 4H chart — trade only with that trend.
- Mark recent FVGs in the direction of the trend.
- Wait for price to return into the gap. Don't chase the impulse.
- Drop to a lower timeframe (5m/15m) and look for confirmation — a rejection wick, a shift in structure, or a strong close back out of the zone.
- Stop beyond the gap, target the most recent swing high/low. If the gap is fully traded through and closes beyond it, the idea is dead — exit.
5. FVGs under funded-account rules
FVG entries suit funded trading because they define risk tightly: your stop sits just beyond the zone, so position size is easy to calculate against a daily drawdown limit.
- Risk a fixed fraction per trade (0.5–1% of the account) so a string of failed gaps can't touch your daily loss limit.
- Skip news-created gaps unless that's your tested specialty — they fill fast or not at all.
- One zone, one attempt. If the gap fails, don't re-enter the same zone three times hoping. That's how daily drawdown dies.
- Backtest first. Run the model over at least 100 historical gaps on your market before putting a funded account behind it.
6. FAQ
Do fair value gaps always fill?
No. Many do — especially on lower timeframes — but trend-starting gaps can stay open for months. Treat every FVG as a zone of interest, never a promise.
What's the difference between an FVG and a regular gap?
A regular gap is a jump between one candle's close and the next candle's open (common when markets close overnight). An FVG is about wick overlap across three candles during continuous trading — it measures one-sided delivery, not a session break.
Which markets do FVGs work on?
Any liquid market: forex, indices, metals, crypto. The cleaner the liquidity (major pairs, major indices), the more orderly the revisits tend to be.
Run your FVG model on a funded account
Pay After Passing lets you prove the strategy inside real drawdown rules with zero upfront cost — you only pay once you've passed.