ICT / SMC8 min read · May 1, 2025

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:


  • Candle 1 — any candle
  • Candle 2 — a large momentum candle (the "impulse")
  • Candle 3 — a candle whose low (in a bullish FVG) is higher than candle 1's high

  • 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:

  • FVG at a discount (below 50% of the range) for longs, premium for shorts
  • FVG aligns with a higher-timeframe order block
  • FVG fills during the kill zone (London open 2–5am ET, NY open 7–10am ET)
  • Liquidity sweep just before the FVG retracement

  • 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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