ICT Concepts · Lesson 01
Fair Value Gaps
Learn how displacement can leave an imbalance between three candles — and how traders identify those zones when price returns.
What Is a Fair Value Gap?
Picture price drifting sideways. Then one candle breaks away and races in a single direction. Now look at the candle before it, and the candle after it.
Sometimes those two outer candles never touch. The first one finishes below a certain price, the third one starts trading above it, and the big candle in the middle covered the ground in between. The prices neither outer candle traded through — that is the gap.
A price range left between candle 1 and candle 3 after strong displacement.
In ICT-style analysis this is read as an imbalance: price repriced so quickly that part of the range saw little two-sided trading. Traders who use the idea treat the zone as an area worth watching. It is a lens for reading price, not a promise about what price will do next.
See It on the Chart
A bullish displacement creates a gap between candle 1's high and candle 3's low.
- Find candle 1. It is the candle just before the strong move.
- Note its high. That is the bottom edge of the gap.
- Now look at candle 3. Its low is the top edge.
- The space between them is the gap.
The Three-Candle Structure
The candle before displacement
Often an ordinary candle. Its high (in a bullish case) marks one edge of the gap.
The displacement candle
Large and decisive. It usually spans the whole area, which is why the gap is invisible inside it.
The candle after displacement
Its low (in a bullish case) marks the other edge. The gap is only confirmed once it has closed.
The test is a simple comparison. For a bullish gap, ask: is candle 1's high lower than candle 3's low?
If yes, there is daylight between them. Because candle 3 never trades back down to candle 1's high, a price range remains that neither candle touched.
Bullish Fair Value Gap
BullishA bullish gap follows strong upward displacement. To check for one:
- Spot the strong upward move — a large green candle.
- Read candle 1's high (the candle before it).
- Read candle 3's low (the candle after it).
- If candle 3's low is above candle 1's high, a bullish FVG exists. The zone runs between those two prices.
What happens next is not fixed. Some ICT traders watch the zone if price later retraces into it, looking for a reaction. Step through the example below to see one such sequence.
A Bullish Story, Step by Step
Normal price action, displacement, the gap, a retrace into it, and a reaction.
Bearish Fair Value Gap
BearishFlip the picture upside down. After strong downward displacement, compare candle 1's low with candle 3's high.
If candle 3's high stays below candle 1's low, the two candles never overlap. The gap sits between candle 3's high (bottom edge) and candle 1's low (top edge).
A Bearish Story, Step by Step
The same sequence mirrored: displacement down, a gap, a retrace up into it, and a reaction.
Side by side
C1 High < C3 Low
- Zone
- C1 High → C3 Low
- Typical context
- Upward displacement
C1 Low > C3 High
- Zone
- C3 High → C1 Low
- Typical context
- Downward displacement
When Is an FVG Invalid?
A gap is only useful while price respects it. In this lesson's framework:
- A bullish FVG has lost its meaning if price trades completely through the lower boundary.
- A bearish FVG has lost its meaning if price trades completely through the upper boundary.
Terminology varies between traders. Some call a touched gap “mitigated”; some require a candle to close beyond the edge, others count a wick. Treat this as one common reading, not a universal rule.
Valid vs Invalidated
Same gap, two different continuations. Toggle between them.
Why Traders Care About the Imbalance
In ICT-style analysis, the rapid move is interpreted as an imbalance or repricing event. The thinking goes:
- Price moved aggressively in one direction.
- Through part of that range, little two-sided trading took place.
- The three-candle structure makes that untraded area easy to see.
- Traders may watch the range if price later retraces into it.
This is an interpretive framework, not a proven model of market microstructure. Use it as a way to organise what you see on a chart.
Not Every Gap Becomes a Trade
Fair value gaps appear constantly, on every market and timeframe. Most of them will never matter to you. Whether one deserves attention depends on the story around it.
Where Can You Find FVGs?
Three-candle gaps can form in any market and on any timeframe — the geometry is identical.
The article this lesson draws on focuses on intraday charts of busy, high-volume markets, and 5 and 15-minute charts are popular examples in ICT teaching. That is a matter of convention, not proof that they are the “best” timeframes. Faster charts simply produce more gaps — and more gaps that do not matter.
Can You Spot the FVG?
Knowledge check
Check 1
Does this sequence form a bullish Fair Value Gap?
Knowledge check
Check 2
Is this a valid FVG?
The second example shows why displacement alone is not enough. A strong candle is only half the story; the outer candles must also stay apart.
Your Turn
Find the Fair Value Gap before revealing the answer
There is one clear bullish FVG somewhere on this chart. One earlier candle looks strong but leaves no gap.
- Candle 1 high
- —
- Candle 3 low
- —
- Gap size
- —
What You Learned
- FVGs use a three-candle structure.
- Bullish gaps exist between the high of candle 1 and the low of candle 3.
- Bearish gaps exist between the high of candle 3 and the low of candle 1.
- An FVG is context, not a guaranteed trade.
No overlap between candle 1 and candle 3 across the relevant price range.