Key takeaways
- A fair value gap is a three-candle pattern where the wicks of candle 1 and candle 3 do not overlap, leaving a one-sided price zone.
- Bullish FVGs (sometimes called BISI) sit below price as possible support; bearish FVGs (SIBI) sit above price as possible resistance.
- The 50% level of the gap is called consequent encroachment and is a common reference for entries and invalidation.
- Gaps created by displacement that breaks structure are generally treated as higher quality than small gaps inside choppy ranges.
- An FVG is a zone of interest, not a guarantee; define your stop and size before entering.
Contents
When price moves very quickly in one direction, it can leave behind a stretch of the chart where trading happened on only one side. ICT traders call that stretch a fair value gap, or FVG. It is one of the most widely used tools in the framework, and it underpins several later ideas such as the inverse FVG and the balanced price range.
This lesson explains what an FVG is, how to grade it, and how traders use it, along with the ways it commonly goes wrong.
What it is
A fair value gap is a three-candle pattern. The middle candle is large and moves strongly in one direction. If the wick of the first candle and the wick of the third candle do not overlap, the price range between them is the gap.
- Bullish FVG: the gap runs from the high of candle 1 up to the low of candle 3. It forms during a sharp move up.
- Bearish FVG: the gap runs from the low of candle 1 down to the high of candle 3. It forms during a sharp move down.
The idea behind the name is that price moved through this zone so fast that only buyers (in a bullish gap) or only sellers (in a bearish gap) were really in control. ICT traders often expect price to return to the gap later, to "rebalance" it, before continuing. You will also see the shorthand BISI (buy-side imbalance, sell-side inefficiency) for a bullish gap and SIBI (sell-side imbalance, buy-side inefficiency) for a bearish one. The labels are optional; what matters is reading the pattern correctly.
The midpoint of the gap is called consequent encroachment (CE). Many traders treat it as the key line inside the zone: price respecting the CE suggests the gap is holding, while candle bodies closing well beyond it suggest weakness.
This is a framework traders use, not a law of the market. Plenty of gaps are never revisited, and plenty are revisited and then broken.
How to identify it
- Find a displacement candle. Look for a candle with a large body relative to the candles around it. See displacement and market structure shift for what counts.
- Check the neighbors. Compare the wick of the candle before it with the wick of the candle after it.
- Confirm there is no overlap. For a bullish gap, candle 3's low must be above candle 1's high. For a bearish gap, candle 3's high must be below candle 1's low.
- Mark the zone and the 50% line. Draw a box between the two wicks and a dashed line at the midpoint.
- Grade the gap. Ask whether the move broke structure, whether it aligns with your higher-timeframe bias, and whether the gap sits in premium or discount.
- Define invalidation in advance. Decide what a failure looks like before price returns.
High-probability vs weak gaps
"High probability" here is a relative description, not a statistic. Traders typically favor gaps that:
- Form during displacement that breaks a swing high or low.
- Appear after a liquidity sweep, which suggests a fresh move rather than noise.
- Align with the higher-timeframe direction.
- Sit in discount for longs or premium for shorts.
Gaps tend to be treated as weaker when they are tiny (one or two pips on a 5-minute chart), appear in the middle of a sideways range, form against the higher-timeframe trend, or have already been traded through several times.
Timeframe
FVGs appear on every timeframe. A daily or 4-hour gap marks a larger zone that may matter for days; a 1-minute gap may matter for minutes. A common approach is to identify a higher-timeframe gap as the area of interest and then look for a smaller-timeframe gap inside it for the actual entry.
Worked example: a bullish FVG on EUR/USD
The following prices are illustrative. Assume EUR/USD on the 15-minute chart sweeps an overnight low and then rallies.
- Candle 1: high 1.0842, low 1.0828
- Candle 2: a large bullish candle from 1.0838 to 1.0874, breaking a prior swing high at 1.0865
- Candle 3: low 1.0851, high 1.0880
Candle 3's low (1.0851) is above candle 1's high (1.0842), so a bullish FVG exists.
| Level | Price |
|---|---|
| Top of gap (candle 3 low) | 1.0851 |
| Consequent encroachment | 1.08465 |
| Bottom of gap (candle 1 high) | 1.0842 |
| Gap size | 9 pips |
Gap size: 1.0851 − 1.0842 = 0.0009 = 9 pips. Midpoint: (1.0851 + 1.0842) ÷ 2 = 1.08465.
A trader planning a long on a retracement might place a limit order at the top of the gap, 1.0851, with a stop-loss at 1.0834, a little below candle 2's origin. That is 17 pips of risk. A target at the next buy-side liquidity, say 1.0902, is 51 pips away, a 1:3 risk-to-reward ratio.
On a $10,000 account risking 1% ($100), and with a pip worth about $10 per standard lot on EUR/USD, position size = $100 ÷ (17 × $10) ≈ 0.58 lots. The Position Size Calculator does this for you.
Invalidation: if a 15-minute candle body closes below 1.0842, the bottom of the gap, the idea is considered failed. Some traders are stricter and exit on a body close below the CE at 1.08465.
How traders use it
- As an entry zone after a market structure shift: wait for the retrace into the gap, then enter with a defined stop.
- As a target. An unfilled gap in the opposite direction can act as a magnet for price.
- As a bias check. If bullish gaps keep holding and bearish gaps keep failing, order flow is arguably bullish.
- Combined with other PD arrays, such as optimal trade entry levels or an order block.
Trading carries substantial risk. Even a well-graded FVG can fail, so size every trade so that a loss is affordable.
Common mistakes
- Marking every gap. On a fast chart there are dozens per day. Without grading, the tool becomes noise.
- Using bodies instead of wicks. The classic FVG is defined by wicks of candles 1 and 3.
- Ignoring context. A bullish gap against a strong higher-timeframe downtrend is a weaker idea.
- No invalidation rule. Holding a trade after price closes through the gap turns a small loss into a large one.
- Expecting an exact fill. Price may only tap the top of the gap or overshoot the CE.
Summary
A fair value gap is a three-candle imbalance where the wicks of candles 1 and 3 do not overlap. Bullish gaps may act as support and bearish gaps as resistance, with the 50% consequent encroachment line as a key reference. Grade gaps by displacement, structure breaks, bias and premium/discount, define invalidation before entering, and manage risk on every trade. When a gap fails, it can flip roles, which is the subject of the lesson on the inverse FVG. Before that, the next two lessons look at the gap's midpoint and at the first presented FVG.
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Practice worksheet
Practice worksheet
4 exercises to try on paper. Print it, save it as a PDF from the print dialog, or download a plain-text copy.
- On a 15-minute EUR/USD chart, mark every three-candle FVG from the last trading day. How many were filled within the next 20 candles?
- Pick three FVGs created by displacement that broke a swing point and three created inside a range. Compare how price reacted at each.
- For one bullish FVG, draw the consequent encroachment line and note whether any candle body closed below it.
- Find a gap on the 1-hour chart and check whether a lower-timeframe FVG formed inside it during the retracement.
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