Lesson 1 of 10 · 12 min
Fair Value Gap
Also called FVG
Step 1
What it is
Look at any three candles in a row. If the wick of the first and the wick of the third do not overlap, price left an empty space between them. That space is called a fair value gap, or FVG.
It happens when the middle candle moves so quickly that very little trading takes place in that range. Price may come back to that space later, or it may not, and a return does not guarantee anything useful will follow.
Traders use it because it gives them a specific place to plan around, instead of buying wherever price happens to be. A gap gives you a defined area to enter and a clear point where the idea stops making sense.
Step 2
See it on a chart
A bullish fair value gap, with a similar-looking area that does not qualify.
Illustrative chart with made-up prices, built for teaching. It is not real market data and not a trade idea.
Step 3
The exact rules
What must be true before entry
- Three candles where the first and third wicks do not overlap.
- A strong middle candle that closes well beyond the recent range.
- A clear objective on the far side, such as an earlier swing high or low.
Where to enter
Where the stop goes
Where the target goes
What invalidates the idea
- Price closes through the entire gap.
- Price trades past the candle that started the move.
When not to take it
- The gap is so wide that the stop rules out 3:1.
- Price has already returned to this gap more than once.
- Major news is due soon, or you would be trading outside your planned hours.
- You have just taken a loss and feel the need to win it back.
Step 4
Your turn: plan the trade
Price has moved down fast and left a gap, and it has now come back up into it. Mark where you would enter, where your hard stop goes and where you would take profit.
This setup is a short. Choose a line below, then tap the chart to place it. You can also drag its label or type a price.
Illustrative chart with made-up prices, built for teaching. It is not real market data and not a trade idea.
Step 5
The trap: chasing every gap
Once you learn to see gaps, you will see them everywhere, and each one will feel like an opportunity. Most deserve nothing from you. Before planning a trade, check that it meets all the rules, then ask whether you would have taken it had you not been looking for something to do.
Take the Face Yourself Litmus TestStep 6