If you struggle with knowing which Fair Value Gaps (FVGs) to trade and which ones to ignore, this post is for you.
Most new traders see an FVG and assume it’s an automatic buy or sell zone. That’s usually because price action traders hear terms like “bullish fair value gap” or “bearish fair value gap,” or even see a fair value gap indicator on their trading platform, and think every price gap is a high‑probability trading opportunity.
The truth is, most FVGs are noise, and trading every gap you see is a fast way to bleed out an account.
These gaps occur during sharp price movements, often driven by aggressive buying or selling pressure, but that doesn’t automatically make them valid FVGs to trade.
In this post, I’ll walk you through what fair value gaps are, why they form, why markets tend to revisit them, the four rules I use to find the best ones, and how to actually use them to improve your trading strategy and make more informed trading decisions.
Let’s get started.
What is a Fair Value Gap (FVG)?
A fair value gap is a three-candlestick pattern that forms when the price moves so fast that it leaves a “void” between the wicks of candle one and candle three.
This rapid price movement creates a price imbalance because the market skipped over a section where normal trading did not happen.
Before the gap forms, the market is usually moving sideways. This is called consolidation or equilibrium. It happens when buyers and sellers agree on a price for a period of time.
That sideways range is the “fair value,” reflecting stable market sentiment.
When the market breaks out during high volatility, economic news, or even earnings reports, you might see a sharp move in which the price skips levels. This creates the three-candle structure known as a fair value gap.
FVGs can appear in any market condition. You will see them during bullish trends, bearish trends, and even in choppy sideways ranges. For example, sloping flag patterns are a classic chart formation that also develops in these varied environments.
But not every price gap is an FVG.
Normal gaps, like the ones that appear in stocks after earnings or overnight moves, are not the same as the three-candle patterns used in fair value gap trading.
This difference matters. A true FVG shows a supply-and-demand imbalance caused by large institutional trades, hedge funds, or other major market participants. It is not random volatility. It is a sign that smart money created strong buying or selling pressure.
Imbalance vs Inefficiency: What’s Actually Happening?
There’s a lot of confusion out there about whether an FVG is an “imbalance” or an “inefficiency.” Traders argue over the wording like they’re two different things.
They’re not.
Cause and Effect
When you see a strong move that creates an FVG, what you really have is an imbalance between supply and demand. One side pushed aggressively—maybe institutional investors or smart money—and the other didn’t have time to respond.
That imbalance in supply and demand is the cause.
The effect is the inefficiency on your chart, or in this case, a fair value gap.
It’s a cause-and-effect relationship.
Note that I did not say an imbalance between the number of buys and sells. That’s impossible, as every buy order must be matched with a sell order and vice versa. Otherwise, the orders wouldn’t fill.
An FVG forms when either buyers or sellers become more aggressive than the other side.
When buyers overwhelm sellers, prices rise rapidly, leaving a bullish fair value gap. When sellers overwhelm buyers, prices drop quickly, leaving a bearish fair value gap.
Understanding this cause‑and‑effect relationship helps you identify fair, high‑probability setups instead of chasing every three‑candle structure you see.
Why Markets Tend to Revisit Fair Value Gaps
Knowing what an FVG is doesn’t help much unless you understand why price tends to revisit these areas.
This is where liquidity, market inefficiencies, and market makers come in.
Market makers have one job: facilitate orders. They match buyers with sellers, especially when handling large institutional trades that require a lot of liquidity.
When price explodes away from an area and forms an FVG, many of the resting orders in that gap remain unfilled. If you’re a market maker trying to fill a big client order, you need that liquidity.
So what happens? Price gravitates back to the gap.
Markets are liquidity‑seeking machines. They move where the orders are, not where retail traders want them to go.
This FVG gap‑fill behavior becomes even more apparent during periods of high market volatility, when price movements are exaggerated and more gaps form on the chart.
This is also why FVGs are essential for multi-time-frame analysis. You’ll often see price revisit counter-trend high-time-frame FVGs as market makers attempt to fill orders.
Market Structure First: BOS, CHoCH, and Trend Context
Before you trade fair value gaps, you need structure, trend direction, and context.
On the EURUSD hourly example from the video, we started with a clear downtrend: lower highs and lower lows. From there, I tracked the last break of structure (BoS) where the market closed below a key low.
I then identified the highest high inside that leg to mark the change of character (CHoCH). Once the price closed above that, we officially shifted to a bullish trend.
From that point forward, I’m only interested in buys on pullbacks. That’s the backbone of a good trading plan and helps with risk management, risk tolerance, and position sizing.
Structure first. FVGs second.
The 4 Rules for High-Probability FVGs
These rules filter out 90% of the bad setups and help you focus on the high probability trade setups that actually matter.
Rule 1: Trade With the Trend (CHoCH Is the Exception)
If the trend is up, you want bullish FVGs.
If the trend is down, you want bearish FVGs.
The only exception is when you’re trading a confirmed CHoCH, because that signals a potential reversal point where market direction is shifting.
Trend direction matters more than the FVG itself. You want your trades to flow in the same direction as the broader market context, not against it.
Rule 2: The FVG Must Trigger a BOS or CHoCH
You want displacement.
The FVG needs to be part of a move that breaks something meaningful. That means either a break of structure or a change of character.
Just remember that a BoS or CHoCH must occur at an external high or low. Using the internal structure will get you in trouble.
If an FVG doesn’t trigger an external structural break, you’re dealing with internal noise rather than legitimate smart money movements.
Rule 3: Use Premium vs Discount as a Filter
The SMC concept of premium and discount is simple. Anything below the 50% line is considered “discount”, while anything above it is considered “premium”.
In an uptrend, only buy when price retraces into discount.
In a downtrend, only sell from premium.
It’s as simple as the old “buy low, sell high” saying, only we’re using the Fibonacci tool to visualize it.
This removes a considerable number of poor trades and forces you to trade fair, logical setups based on how financial markets actually auction price.
Using a premium/discount filter is also a simple form of risk management because it helps you avoid chasing impulsive moves. It will also drastically improve your risk-to-reward ratio.
Rule 4: One-Time Use Only (Unmitigated)
An FVG is a one-time use area. Once price trades back into it and fills the imbalance, the edge is gone.
A mitigated FVG is no longer a high-probability trading opportunity due to liquidity.
Once the market fills a fair value gap, it triggers resting orders and induces additional liquidity. Once complete, there’s no reason for the market to revisit the area.
Step-by-Step EURUSD Example
On the EURUSD hourly chart in the video, we had a confirmed bullish CHoCH, which shifted our focus to buys only.
The FVG in the chart below also triggered a BoS within the same leg.
From there, I pulled my fibs from the external low of the leg to the new high to find the 50% level. Everything below 50% became my discount window.
Inside that window, I marked the valid one-hour FVGs. I ignored anything internal, anything already mitigated, and anything outside the discount zone.
That combination of trend, structure, discount, and fresh FVGs created a tight area of interest.
From there, the plan is simple:
- Wait for price to trade into the area of interest.
- Drop to a lower time frame (15m, 5m, or 1m).
- Look for a bullish CHoCH inside the FVG zone.
That’s your confirmation. You’re not guessing; you’re responding to real market movements.
This is manual chart analysis done right, not just relying on a random gap indicator.
Multi-Time-Frame FVGs: Which Ones Matter?
Many traders get confused when they see FVGs across multiple time frames.
Which ones should you focus on, and which should you ignore?
Here’s how I simplify it:
Higher Time Frames (4H, Daily)
These act as macro “magnets” created by institutional investors, hedge funds, and smart money. They dominate the chart and often drive reversal points.
Mid Time Frames (1H, 30m, 15m)
These are your actionable zones for execution and refining your trading strategy.
Low Time Frames (5m, 1m)
These let you confirm entries using lower-time frame CHoCH patterns and refine your risk management.
Simplify Multi-Time-Frame FVGs With These Two Rules:
Rule 1: Start at the top, not the bottom. The higher time frames guide the lower ones, so a top-to-bottom approach is best.
Rule 2: If you find valid FVGs on both the 4-hour and 1-hour charts, mark them as an area of interest. Don’t drive yourself crazy trying to pinpoint an exact level. All you need is a zone to watch for a low-time-frame CHoCH (for tips on analyzing your charts, check out this guide).
FVGs as Both Entries and Targets
Most traders think of fair value gap trading only as an entry method, but FVGs are just as powerful as targets.
If price is drawn to imbalances, it makes perfect sense to target untouched bearish gaps or bullish gaps, but only when those gaps align with trend direction and broader market context.
Use fresh, unmitigated FVGs for entries, and use older ones (inverse fair value gaps) as logical exit targets.
This gives you:
- Structure-based exits
- Cleaner R-multiples
- Less emotional decision-making
It all folds into a disciplined trading plan.
Common Mistakes Traders Make with FVGs
There are a handful of mistakes I see over and over again when traders try to trade fair value gaps. Most of them come from overcomplicating the process or ignoring the broader market context.
Here are the most common ones:
- Trading every FVG you see with no regard for trend direction or structure.
- Ignoring premium and discount, which causes traders to buy high and sell low.
- Using mitigated FVGs that no longer carry fresh liquidity.
- Trading internal FVGs, which form inside consolidations and don’t signal smart money intent.
- Relying solely on a fair value gap indicator without understanding the price action behind it.
- Dropping straight to low time frames without checking higher-time frame market conditions.
- Forcing trades during high market volatility when spreads widen, and the structure becomes unclear.
Most of these mistakes come from skipping steps. FVGs require structure, context, and confirmation. Not blind entries.
A Simple Fair Value Gap Checklist
Before taking any trade, run through this quick checklist. It keeps you aligned with the rules and prevents emotional or reactive trading decisions.
- Am I trading with the trend, or a valid CHoCH reversal?
- Did this FVG form because of a meaningful BOS or CHoCH?
- Is price returning to the FVG from premium (downtrend) or discount (uptrend)?
- Is the FVG fresh and unmitigated?
- Does the setup fit my trading plan, risk tolerance, and position sizing?
- Do I have a lower-time frame CHoCH or confirmation inside the zone?
- Does this setup align with the broader market context and current market sentiment?
If you can check all of these, you likely have a high probability trade setup.
Final Words
Fair value gaps can transform your trading when used correctly. They’re not magic, and they’re not meant to be traded in isolation. They’re a tool that becomes incredibly powerful when combined with structure, trend direction, premium/discount, multi-time frame analysis, and confirmation.
Most of the confusion around FVGs comes from overcomplication. Traders tend to treat every gap the same, rather than focusing on those that reveal real supply-and-demand imbalances.
Stick to the four rules:
- With the trend
- Must trigger BOS or CHoCH
- Must be in premium/discount
- Must be unmitigated
Follow those consistently, and you’ll start spotting clean, high-probability trading opportunities that actually make sense.
If you’re serious about mastering price action and smart money concepts, be sure to check out my breakdown on BOS and CHoCH next.
Trade well, and I’ll talk to you in the next one.
Frequently Asked Questions
What is a fair value gap in simple terms?
A fair value gap is a three-candle price imbalance. It’s created by rapid price movement, which leaves a portion of the chart thinly traded. These gaps occur due to aggressive buying or selling pressure.
What’s the difference between a bullish FVG and a bearish FVG?
A bullish fair-value gap forms when the price rises quickly, leaving a thinly traded “gap” below. A bearish fair value gap forms when price drops sharply, leaving a thinly traded “gap” above.
Do FVGs always fill?
Not always, but they often do, primarily when fueled by smart money activity or large institutional trades. Gap fill behavior is common during strong trends and after market volatility events.
What’s the best time frame for trading FVGs?
Higher time frames, like the 1-hour and 4-hour, are best for spotting meaningful imbalances. Lower time frames, like the 15m or 5m, help confirm entries inside those zones.
Are FVGs better than order blocks?
Neither is “better.” They serve different purposes. FVGs show where the price moved too fast, and order blocks show where big orders were placed. Together, they form a clearer picture of smart money behavior.
Do news events affect FVGs?
Yes. Economic news, high volatility releases, and even earnings reports in other markets can create large imbalances that form strong FVGs. Just be cautious, as trading immediately after news can be risky.
