If you've been exploring Smart Money Concepts (SMC) or ICT strategies, you've likely heard the term "Fair Value Gap" or FVG. In this guide, we'll explain exactly what an FVG is, why it forms, and how you can use it to find high-probability trade setups.
A Fair Value Gap occurs when there is a rapid surge in price that leaves an imbalance in the market. It is formed by a three-candle sequence where the wicks of the first and third candles do not overlap, leaving a "gap" in the body of the second (middle) candle.
This gap represents inefficiency. Because financial markets are designed to be efficient, price has a strong magnetic tendency to return to this gap to fill the missing orders.
Traders use FVGs primarily as entry points or targets. When price retraces back into an FVG, it often acts as strong support or resistance, offering an excellent risk-to-reward ratio for a trade.
FVGs are often found inside of larger institutional footprints. Read our guide on What is an Order Block in Trading? to understand how to pair these concepts together.
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