CluenexWhat is a fair value gap?
A fair value gap is a price zone where trading barely happened because price moved too fast in one direction. On a candlestick chart, it shows up as a space between the wicks of two candles that are separated by one large candle.
The term comes from the Inner Circle Trader (ICT) approach, popularized online. It is not a standard academic term. The underlying idea is simple: if buyers or sellers overwhelmed the other side, some prices were skipped, and some traders expect price to return to "fix" that.
How do you spot a bullish and bearish FVG?
Use three candles in a row and look at the wicks of the first and third.
| Type | Candle 2 | The gap is | Example |
|---|---|---|---|
| Bullish FVG | Big green candle | From the high of candle 1 up to the low of candle 3 | Candle 1 high $100, candle 3 low $104: gap is $100 to $104 |
| Bearish FVG | Big red candle | From the low of candle 1 down to the high of candle 3 | Candle 1 low $100, candle 3 high $96: gap is $96 to $100 |
If the wicks of candles 1 and 3 overlap, there is no gap. The size matters too: a $0.05 gap on a $400 stock is noise, while a gap of several percent of price is worth noting.
What is the difference between an FVG and a regular price gap?
A regular gap is a visible hole between one day's close and the next day's open. An FVG is defined inside a three-candle run and can appear on any timeframe, including minute charts where markets trade without a daily gap.
Both describe the same thing: prices that traded little or not at all. Regular gaps often come from news, such as an earnings report, which changes what the company is thought to be worth. Those gaps can last a long time because the news is real, not just a quirk of order flow.
Do fair value gaps always get filled?
No. Price often revisits a gap, but there is no reliable rate. Figures like "70% fill within 30 days" circulate widely but have no primary source, and the result depends heavily on the stock, timeframe, how a gap is defined and what counts as "filled" (touching the edge, reaching halfway or closing it fully).
Two biases also inflate the apparent fill rate. Small gaps fill easily because normal daily movement is larger than the gap. And in a chart you are looking at after the fact, you notice the gaps that filled and forget the ones that did not.
How would you test an FVG idea yourself?
Treat it like any rule and write it down before looking at results.
- Define the gap precisely (for example, at least 1% of price on the daily chart).
- Define "filled" (for example, price trades back to the near edge).
- List every gap in a set of stocks over several years, not just the memorable ones.
- Count how many filled within a set time, and what price did after.
- Compare with a simple baseline, such as holding the stock over the same days.
If the result is not clearly better than the baseline after costs, the pattern is not an edge. Our own related guide on backtesting seasonal trades shows why popular setups often fail this check.
Where do fair value gaps fail?
Gaps fail as predictors in several common situations.
- Strong trends. In a steady rally, price may never come back to a gap that formed weeks earlier.
- News gaps. If a gap came from a profit surprise or new guidance, the market has repriced the company. Price may stay at the new level. See how to read an earnings report.
- Too many gaps. On small timeframes, gaps appear constantly, so almost any price can be matched to one after the fact.
- Stops and costs. A reaction at a gap can be a few cents or a few percent. Spreads and fees can erase small moves.
- Hindsight. Drawing zones on a finished chart is easy. Doing it live, with no knowledge of what happens next, is much harder.
Worked example of why a fill is not a trade: a stock closes at $100, then opens at $105 after good news. The gap is $100 to $105. If price falls back to $103, a trader might call that a reaction at the gap. If it keeps falling to $98, the gap was filled and the move continued, so there was no bounce to catch. The same gap supports both stories.
Can FVGs be combined with other tools?
Traders often pair gaps with support and resistance, volume or order blocks, another ICT term for the last opposite candle before a strong move. Overlap can make a level more noticeable, but more lines on a chart also make it easier to find a match by chance. Claims of "extreme probability" for any overlap are unsupported.
Useful companions are support and resistance levels and volume analysis, mainly to judge whether a level has been respected before.
Cluenex shows common technical indicators and harmonic pattern zones on its charts, and treats chart patterns as context, not as buy or sell signals, because its own tests found no reliable directional edge in them. Test results, including retired signals, are published at cluenex.com/signals.
What this means for you
If you have a regular job and a brokerage account, treat a fair value gap as a note on the chart, not a trade plan.
- Check the business first. A gap after earnings or a deal tells you something changed about the company, so read the news before looking at the zone.
- Decide your position size and the most you can lose before you enter anything, using position sizing.
- If you want to rely on gaps, test them on at least a few years of data across many stocks and compare with simply holding.
- Do not use claims of fixed win rates from videos or forums as a basis for decisions.
- Keep a log of every gap trade, including losers, so you can see what actually happens.
Long-term investors can safely ignore FVGs entirely. Business quality, price paid and time in the market matter far more than small chart zones.