Fair Value Gaps (FVG) Explained for Beginners

A fair value gap (FVG), sometimes called an imbalance, is a small gap left behind by a fast, one-sided move. It's one of the first SMC concepts beginners can spot reliably because it has a clear, mechanical rule.

Definition: a fair value gap is a three-candle gap where the first and third candles do not overlap, leaving a gap on the middle candle.

The three-candle rule

• Look at three candles in a row during a strong move.
• Check the wick of the first candle and the wick of the third candle.
• If they do not overlap, the empty space on the middle candle is the fair value gap.
• A bullish FVG forms on the way up; a bearish FVG forms on the way down.

Why fair value gaps get filled

A fast move can leave price 'unbalanced' — it moved so quickly that not everyone who wanted to trade got filled. Price often returns to rebalance that gap before continuing. That return is what traders watch for.

Displacement: the move that creates an FVG

Fair value gaps are created by displacement — a strong, one-sided move that usually breaks structure. When you see displacement that breaks structure and leaves an FVG, it signals aggressive intent and gives you a zone to watch on the pullback.

As always, the gap is a zone of interest, not a guaranteed entry. Combine it with structure and a clear risk-to-reward plan.

See fair value gaps on real charts

The free lesson below animates the three-candle rule so you can see exactly where the gap forms and how price reacts when it returns. It's available in English and Taglish.