A three-candle pattern where a gap exists between the first and third candle, indicating an imbalance in price.
A fair value gap (FVG) forms when price moves so aggressively that it creates a gap between the high of the first candle and the low of the third candle (for bullish FVGs) or vice versa. This gap represents an area where one side dominated so heavily that no real trading occurred at those prices. The market often returns to fill these gaps.
FVGs are magnets for price. Institutional traders use them as reference points for re-entry. When price returns to fill an FVG, it often provides a high-probability entry point in the direction of the original move. They are a key concept in smart money trading.
Three consecutive bullish candles form. Candle 1 has a high of $50, candle 2 is a large green candle, and candle 3 has a low of $52. The gap between $50 and $52 is the FVG. When price later pulls back to the $50–$52 zone, it often bounces, providing a long entry.
A bullish Fair Value Gap: the gap between Candle 1’s high and Candle 3’s low shows an imbalance where price moved too fast.