Fair Value Gap (FVG), explained

Most of the time, candles overlap. Each new candle trades back into part of the one before it, and price moves step by step like a staircase.

Sometimes one candle runs. Orders flood in on one side, price jumps, and the market skips a step. That skipped step is a Fair Value Gap (FVG) — an imbalance left by a fast, one-sided move. Traders mark it because price often comes back to that area later.

The term was made popular by the ICT (Inner Circle Trader, Michael J. Huddleston) teaching, which spread it through forums and YouTube. The idea of an imbalance is older than the name; ICT made the FVG label widely used.

An FVG always uses three candles in a row. Candle 2 is the fast one. You compare the wicks of candle 1 and candle 3 — never the bodies.

• Bullish FVG (price moving up): candle-1 high is lower than candle-3 low. Example: candle-1 high = 100, candle-3 low = 104 → the gap is the zone 100–104.
• Bearish FVG (price moving down): the mirror. Candle-1 low is higher than candle-3 high. Example: candle-1 low = 104, candle-3 high = 100 → the gap is 100–104.

In both examples the gap is 104 − 100 = 4 points tall. On ackalgo diagrams a bullish gap is drawn in sky blue and a bearish gap in red — colour always means direction.

Wicks overlap = no FVG. If candle-3's low reaches down to or below candle-1's high (bullish case), the space is already traded. No gap, no box. This is the check that removes most false marks.

An FVG is not an opening or weekend gap. A classic chart gap is an empty space between one session's close and the next session's open — you see bare chart between the candles. An FVG can form while the candle bodies are fully connected, in the middle of a normal session. The gap lives between the wicks of candles 1 and 3, inside the body of the fast candle 2.

• Find the fast candle and look at its two neighbours.
• Bullish: put the bottom of the box on candle-1 high and the top on candle-3 low. Bearish: top on candle-1 low, bottom on candle-3 high.
• Start the box at candle 1 and extend it to the right, so you see it when price comes back.
• Colour it by direction: sky blue for bullish, red for bearish.

Then split the box in half. The midpoint is called Consequent Encroachment (CE) — the 50% line. In our example, (100 + 104) / 2 = 102. Many FVG playbooks anchor their rules to this line, so mark it on every box.

Once a gap is boxed, it ends in one of three ways:

• Full fill — price comes back and trades through the whole box. The gap is closed.
• Touches half — price reaches the CE line (50%) and leaves again. The box is partly used.
• Never returns — price keeps going and the box stays open, sometimes for a long time.

The sources used for this guide do not provide a reliable universal frequency for these endings, so we do not quote one. Watch which ending you get, note it, and build your own record.

The same 3-candle rule applies on every timeframe — M15, H1, D1 and beyond. The box size always comes from the actual candle-1 and candle-3 wick levels. Higher-timeframe candles often cover more price, so their FVG boxes can be wider, but the timeframe alone does not determine the size.

A practical routine: mark the gaps on your higher timeframe first, then drop to a lower timeframe to see how price behaves when it reaches that box.

Four steps, every time:

• HIGH 1 — find candle-1's high (bearish: its low).
• LOW 3 — find candle-3's low (bearish: its high). If the wicks overlap, stop — no gap.
• BOX IT — draw the box wick to wick and extend it right. Sky blue up, red down.
• 50% — draw the CE line through the middle of the box.

Mark the box before price returns, test your rules on past charts, and keep notes on which of the three endings you see.