What is a fair value gap (FVG)?

Take three candles in a row. In a bullish fair value gap, the high of the first candle is below the low of the third: the second candle moved so fast that, for a stretch of prices, only buyers traded. That stretch — from the first candle’s high to the third candle’s low — is the gap.

A bearish gap is the mirror: the first candle’s low is above the third candle’s high. ICT traders also call it an imbalance or inefficiency, and watch the 50% level, consequent encroachment, as the point where a respected gap should hold.

EURUSDBullish FVGConsequent encroachment (50%)
The first candle’s high and the third candle’s low leave a gap inside the big middle candle. Price returns to the gap’s midpoint and continues.

The example in numbers

Fair value gap1.08400–1.08520 · 12 pips · 50% at 1.08460
Entry (long)1.08460 — the gap’s midpoint
Stop1.08380 — 2 pips below the gap (8 pips)
Target1.08840 — the next high (38 pips)
Reward to risk4.75R · breaks even at a 17% win rate

EURUSD prices from the chart above (Fair value gap), entry at 1.08460. At 4.75R, this setup needs to win more than 17% of the time to make money before costs. Try your own levels in the risk/reward calculator.

Fair value gap: how to spot it

  1. Find a large displacement candle with smaller candles on either side.
  2. Compare the wick of the candle before it with the wick of the candle after it. If they do not overlap, the space between them is the gap.
  3. Draw the zone from the first candle’s high to the third candle’s low (bullish), and mark its midpoint.
  4. Wait for price to return into the gap. A close beyond the far edge means the gap failed — and may become an inverse FVG.

Definitions differ

Some traders draw gaps from candle bodies, not wicks, which gives a smaller zone. Many ignore gaps below a minimum size, such as a few pips on the 1-minute chart. A balanced price range, two opposite gaps that overlap, is treated separately in ICT teaching.

Common mistakes

  • Every small gap is a setup

    On low timeframes gaps appear all the time. The ones that matter usually come with a break of structure or form inside a killzone.

  • Entering at the first touch of the gap

    Price often trades deeper, to the midpoint or the far edge. An entry at the edge with a tight stop gets taken out more often than one at the midpoint.

  • Ignoring the direction of the gap

    A bullish gap is support only while price closes above its bottom. Once a candle closes below it, the gap is no longer bullish.

Your win rate on FVG

A definition does not tell you whether your FVG trades pay. Your own record does: in the journal, open a trade from MT4 or MT5 and press the key of FVG under Entry criteria — the most used criteria get keys 1–9.

Reports then show FVG by itself: trades, win rate without breakeven trades, average R and P&L, and FVG in each ICT killzone, which is set on every trade by itself. Combinations such as FVG with another criterion appear once they have 15 trades, so a lucky streak does not look like an edge.

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Questions

›Do fair value gaps always get filled?

No. Many are only partly filled, and some are never revisited. That is why it helps to track how often your gaps held, filled to the midpoint, or failed.

›What is consequent encroachment?

The 50% level of a fair value gap. ICT traders watch whether price respects it: a close beyond the midpoint is read as a weaker gap.

›Is a fair value gap the same as an imbalance?

In ICT and SMC usage, yes — imbalance and inefficiency are other names for the same three-candle gap.

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