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Forex Guide · Smart Money Concepts

Fair value gap (FVG): the ICT imbalance explained

A fair value gap is a price area that one fast candle skipped through. Many ICT and SMC traders expect price to come back to it.

Qazi Forex Tips
By the Qazi Forex Tips team, led by Dr. Qazi Abdul Basit, Ph.D
Updated 23 October 2026

The three-candle rule

  • Bullish FVG: the low of candle 3 is above the high of candle 1. The gap between them is the FVG.
  • Bearish FVG: the high of candle 3 is below the low of candle 1.

Candle 2 is the large candle that created the gap; its body covers the area where the wicks of candles 1 and 3 do not overlap.

A bullish fair value gap between the high of candle 1 and the low of candle 3.
A bullish fair value gap between the high of candle 1 and the low of candle 3.

Why traders watch it

The gap shows one-sided, fast trading. Price often returns into the gap later ("fills" or "rebalances" it). Many traders watch the 50% level of the gap, called consequent encroachment.

Using it in a plan

  1. Take the higher-timeframe direction first.
  2. Look for an FVG created by the move that broke structure.
  3. Wait for price to return into the gap.
  4. Enter on a reaction, stop beyond the gap or the swing, target the next liquidity.

Limits

Not every gap gets filled, and strong trends can run without coming back. FVGs work best together with structure and liquidity, not on their own.

Khulasa (Roman Urdu / Hindi)

  • Bullish FVG: candle 3 ka low candle 1 ke high se oopar.
  • Bearish FVG: candle 3 ka high candle 1 ke low se neeche.
  • Price aksar gap mein wapas aati hai; 50% level ahem.
  • Structure aur liquidity ke saath use karein.

Questions

What is a fair value gap in trading?

A three-candle imbalance where the wicks of the first and third candles do not overlap, leaving a gap the middle candle moved through.

How do you identify a bullish FVG?

The low of the third candle is above the high of the first candle.

What is consequent encroachment?

The 50% level of a fair value gap, which many ICT traders watch for reactions.

Do all fair value gaps get filled?

No. Many are revisited, but strong trends can leave gaps unfilled for a long time.

Is an FVG the same as an imbalance?

Yes, the terms are used for the same three-candle gap.

Which timeframe is best for FVG trading?

Find the FVG on H1–H4 for direction and look for entries on M5–M15.

Watch the video lessons

Video lesson · 25:34Market structure explained: the key to direction and entriesVideo lesson · 22:49How to identify and avoid false breakoutsVideo lesson · 32:31Rule-based multi-timeframe analysis (top-down)

Education only, not financial advice. Trading forex, Gold and CFDs carries a high risk of loss. Contract sizes, spreads and leverage differ by broker; check your own broker's specifications.