Fair Value Gap (FVG) Trading Strategy — Complete Guide
What is a Fair Value Gap?
A Fair Value Gap (FVG) is a three-candle pattern where price moves so fast that it leaves an imbalance — a price range that was never properly traded through. The market tends to return to fill these gaps before continuing in the original direction.
FVGs are a core concept in ICT (Inner Circle Trader) and Smart Money Concepts (SMC) trading. They represent areas where large institutions placed orders so aggressively that normal two-sided trading didn't occur.
How to identify a Fair Value Gap
Look for three consecutive candles:
The gap between candle 1's high and candle 3's low is the FVG.
Bullish FVG: Candle 3's low > Candle 1's high → price gapped up, potential support on retracement
Bearish FVG: Candle 3's high < Candle 1's low → price gapped down, potential resistance on retracement
How to trade FVGs
Entry: Wait for price to retrace into the FVG zone, then look for confirmation — a rejection candle, a smaller timeframe BOS (break of structure), or a confluence with another level (order block, OTE, premium/discount).
Stop loss: Below the FVG for longs, above the FVG for shorts. A close through the FVG invalidates the setup.
Target: The previous swing high (for longs) or swing low (for shorts). Minimum 1:2 R:R.
Confluence makes FVGs stronger
The highest-probability FVG setups have 2–3 of these:
Common mistakes
1. Trading every FVG — Not every FVG fills. Focus on FVGs at key structural levels.
2. Entering too early — Wait for price to actually reach the FVG, not just approach it.
3. Ignoring the trend — Bullish FVGs work better in uptrends. Bearish FVGs work better in downtrends.
4. Too small a timeframe — FVGs on the 1-minute chart are noisy. The 5m, 15m, and 1H are most reliable.
FVGs on futures
FVGs are particularly clean on NQ, ES, and CL because these markets move in large impulses driven by institutional order flow. The best FVG setups on NQ often coincide with the NY session open and major news events.
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