Fair Value Gap (FVG)

A fair value gap is a hole in traded prices on a three-bar pattern. The middle bar moved so far that the bar before it and the bar after it do not overlap. On a traded market that hole is a thin region: little or no trade printed between the first bar's extreme and the third bar's near side. The label "fair value" is promotional. Nothing has established that the hole is unfair or that it must be filled. The observable fact is an imbalance. Price often returns to imbalances and often does not. The return is a tendency you still have to test on your market and timeframe.

Mark the zone only when the third bar has printed and the gap is real. A large middle bar whose neighbours still overlap is just a large bar. On a later revisit, a wick into the gap is a test. A close through the far side of the gap fills it and, in the strict use, removes it. Partial fills are normal. Some traders fade the first touch of the gap in the direction of the impulse, placing a stop beyond the far edge. That is a mean-reversion entry inside a momentum event, which is a specific strategy with a specific failure: the impulse continues and the gap never trades again.

A bullish gap under price, left by a strong up candle, is a pullback location. The long is a dip into the gap that holds, in the direction of the break that created it. If the higher timeframe is falling, a bullish gap is a pause in a decline until proven otherwise. Do not buy every unfilled gap. Buy the ones that sit on a level and inside a bias. A gap with no level is a rectangle.

A bearish gap above price is the short-side mirror. A rally into the gap that fails is the entry. A close through the top of the gap invalidates the short. In a strong uptrend, bearish gaps get filled quickly and then price goes on. Fading them against the trend is how the pattern's loss rate shows up.

Marking gaps on a low timeframe where three bars of noise leave a hole every few minutes. Also insisting every gap must fill. "Must" is the word that turns a tendency into a trap, especially before a news bar that created the hole for a reason. And using wicks on one gap and bodies on the next so the zone always touches the current price.

A gap on a candle chart is not the same as a gap in the order book. The market may have traded those prices on a faster timeframe. Check a lower timeframe before you call a zone empty. Fair value gaps also have no size requirement in the basic definition, so a one-tick hole counts unless you add a minimum. Add one. A tiny gap is not a location.