Fair Value Gap Explained

In the common ICT-style definition, a fair value gap describes limited overlap between candles surrounding an impulsive move. The phrase sounds like a valuation claim, but the chart pattern does not calculate what ES or NQ is worth. It marks a part of the move that the surrounding candles did not revisit.

The middle candle may have traded throughout that price range. Consequently, an FVG is not necessarily an interval with zero transactions. Calling it an unfilled institutional order is stronger than the evidence supports. A candlestick cannot tell you the owner, size or remaining quantity of a hidden order.

This article is about the specific three-candle pattern and its retests. The broader framework is in ICT trading for futures. My own process remains focused on prepared liquidity levels and orderflow; explaining FVGs does not mean they are the basis of every setup I trade.

Label three completed candles one, two and three. A bullish FVG exists under the common wick-based definition when candle three’s low is above candle one’s high. The gap zone runs from candle one’s high up to candle three’s low. Candle two typically carries the upward displacement.

For a hypothetical ES sequence, candle one’s high is 6,000 and candle three’s low is 6,003. The zone is therefore 6,000–6,003, with a midpoint of 6,001.50. These invented prices illustrate the pattern; they are not a documented trade or a forecast.

Wait for candle three to complete before treating its final low as fixed. A live candle can trade down and erase the apparent pattern. An indicator that draws a box before the candle closes can make historical examples appear cleaner than the real-time decision was.

Choose whether your method requires a minimum gap width or a particular displacement condition. If you add those filters, name them clearly as your own rules. Do not pretend that every charting script implements an identical definition.

A bearish FVG exists when candle three’s high is below candle one’s low. Its lower boundary is candle three’s high and its upper boundary is candle one’s low. The middle candle carries the downward move.

If candle one’s low is 6,010 and candle three’s high is 6,007, the hypothetical bearish zone is 6,007–6,010. Price returning upward into it gives you a location to assess selling response. It does not tell you to place a blind limit order at its midpoint.

Keep the wick-based and body-based versions separate in your journal. Changing between them after seeing the reaction turns a repeatable definition into hindsight. Likewise, distinguish the first retest from later retests rather than assuming every return has the same probability.

A session gap measures a difference between one period’s close and another period’s open. It can arise across market closures or contract changes. An FVG can occur entirely within a continuous session and does not need an opening gap.

An order block generally identifies an opposing candle or small range before displacement. An FVG identifies the limited overlap across a three-candle sequence. They may lie near each other, but they answer different chart questions. Read order blocks trading rather than treating the terms as interchangeable.

A footprint imbalance compares aggressive buying and selling at price rows under a chosen rule. That is a trade-data observation, not a candle-spacing pattern. A low-volume node also measures a selected distribution of transactions. Neither is automatically present just because the chart contains an FVG.

Use precise labels. A chart can contain a bullish FVG while aggressive selling increases during its retest. That is not a contradiction: the candle pattern describes the past move; the orderflow describes the current response.

First decide whether the market is trending, rotating, or reacting to new information. A small bullish FVG in the middle of a broad range is different from one produced by a sustained move out of established balance. If everything is a zone, nothing is prioritised.

Mark higher-timeframe context before examining smaller candles. A lower-timeframe FVG that runs directly into an opposing higher-timeframe reaction area may offer little room. A pattern aligned with direction can still fail; alignment is a filter to test, not a guarantee.

Check nearby liquidity and intervening targets. An upside move following a sweep of lows may give a different hypothesis from a late rally into prior highs. The liquidity sweep guide explains why a stop run also needs a response rather than a label alone.

After major scheduled news, normal assumptions about retest depth, spread and slippage can break down. Decide whether you exclude those periods before evaluating your examples. Do not judge a news-driven gap using execution conditions from a quiet lunchtime chart.

A touch reaches the near edge of the zone. A partial fill enters it but does not traverse the entire width. A full fill reaches the far boundary. Those describe price travel, not whether a hypothetical order was executed or whether a trade succeeded.

Some traders use the midpoint as a reference, sometimes called consequent encroachment. That is a convention, not a requirement imposed by the exchange. If your plan trades the midpoint, journal midpoint entries separately from near-edge entries because their fill rate and stop distance will differ.

Define failure according to the trade thesis. A bullish continuation idea may be invalidated by sustained trade below the lower boundary or a break of the structure supporting it. A full fill alone is not universally bearish; the subsequent response matters.

There is no defensible universal claim that every fair value gap fills or that a particular percentage is profitable across markets and timeframes. Any rate must specify instrument, sample, definition, expiry, costs and entry rules. Without that information, a percentage is not a usable trading result.

Take the hypothetical ES zone at 6,000–6,003. Price trades higher, then returns towards it. Before the return, define what you need to see: for example, the selling push slows at the zone and price reclaims a local reference under your tested confirmation rule.

Suppose the illustrative entry is 6,002 and the structural invalidation price is 5,999. The stop distance is three points. A planned reference at 6,008 is six points away, giving two times the stop distance before fees and slippage. These are teaching numbers, not an actual entry instruction or typical-results claim.

If price instead trades decisively through the zone and continues below it, the long scenario is not rescued by the word fair. Cancel the untriggered idea or apply your predetermined stop. A pattern label does not justify averaging down or widening invalidation.

If confirmation arrives only at 6,006, the same 6,008 reference leaves just two points of distance while the structural stop is much farther away. Passing on a late entry is part of the plan. Seeing the correct directional idea does not make every execution price sensible.

A footprint can show whether aggressive selling at a bullish zone produces further downside or stalls. Delta can show aggression, but it cannot identify the intent of every participant. Heavy selling with little price movement may indicate absorption; it may also be temporary before the zone breaks.

Look at the response, not just one colourful footprint row. Does price recover the reference you selected? Does the next test hold? Is there still enough distance to the target? The footprint charts guide and cumulative delta guide explain the supporting observations and their limits.

I analyse orderflow in ExoCharts and execute from TradingView through Tradovate. A drawing box is useful for recording an idea, but it is not my orderflow software. For keeping preparation organised on the execution chart, use my TradingView level-mapping tutorial.

My daily ES & NQ setups and liquidity levels provide my preparation and market bias. They are not an FVG indicator subscription or a service instructing you to take every retest. You remain responsible for confirmation, entries, stops and account rules.

Record every qualifying pattern under one definition, not only the attractive examples. Tag direction, timeframe, zone width, displacement, session, trend context, first-versus-later retest and time until revisit. Then apply a fixed entry, stop and exit rule to the sample.

Include gaps that never revisit and trades whose limit orders would not fill. A candle touching an entry price does not establish your live fill at that price. Allow for commissions and slippage, especially when testing small targets. Keep a separate out-of-sample period rather than refining rules until the same chart history looks perfect.

On a funded account, size from remaining drawdown and structural risk, not the notional account label. Multiple copied positions add correlated exposure; a pattern across ES and NQ can fail simultaneously. The futures evaluation risk plan is a better starting point for position size than a gap-width shortcut.

Use a no-trade rule when the zone is unclear, the target is obstructed, news risk is unresolved or the entry arrives late. A good review process includes correct skips. Your goal is a reproducible decision, not the largest collection of successful boxes on yesterday’s chart.