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Lesson 01 of 17 Fair Value Gaps
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ICT CONCEPTS
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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.

  • 8 min read
  • Interactive charts
  • Beginner
01

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.

Fair Value 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.

Educational example
Press Show FVG to reveal the zone. Hide it again and try to spot the three candles yourself.
  1. Find candle 1. It is the candle just before the strong move.
  2. Note its high. That is the bottom edge of the gap.
  3. Now look at candle 3. Its low is the top edge.
  4. The space between them is the gap.
02

The Three-Candle Structure

Candle 1

The candle before displacement

Often an ordinary candle. Its high (in a bullish case) marks one edge of the gap.

Candle 2

The displacement candle

Large and decisive. It usually spans the whole area, which is why the gap is invisible inside it.

Candle 3

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 rule · C1 High < C3 Low
C1 HIGH101.20
C3 LOW102.05
GAP0.85
03

Bullish Fair Value Gap

Bullish

A bullish gap follows strong upward displacement. To check for one:

  1. Spot the strong upward move — a large green candle.
  2. Read candle 1's high (the candle before it).
  3. Read candle 3's low (the candle after it).
  4. 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.

Educational example

A constructed teaching example, not real market data and not a guarantee of how markets behave. Choose a step or press Play.
04

Bearish Fair Value Gap

Bearish

Flip 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).

Bearish rule · C1 Low > C3 High
C1 LOW104.20
C3 HIGH103.40
GAP0.80

A Bearish Story, Step by Step

The same sequence mirrored: displacement down, a gap, a retrace up into it, and a reaction.

Educational example

Again a constructed example. Price may react, stall, or pass straight through a zone like this.

Side by side

Bullish FVG C1 High < C3 Low
Zone
C1 High → C3 Low
Typical context
Upward displacement
Bearish FVG C1 Low > C3 High
Zone
C3 High → C1 Low
Typical context
Downward displacement
05

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.

Educational example

Constructed example. Where you draw the invalidation line is a rule you should define before trading, not after.
06

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.

Price moved too quickly to overlap
07

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.

Market structureIs price trending or ranging around the gap?
Liquidity contextWhere are obvious highs and lows sitting nearby?
Higher-timeframe biasDoes the bigger picture agree with the gap's direction?
News and volatilityScheduled events can drive price straight through zones.
08

Where Can You Find FVGs?

Three-candle gaps can form in any market and on any timeframe — the geometry is identical.

1m 5mcommon 15mcommon 1H 4H Daily

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.

Educational example
Take your time. Look for a large candle whose neighbours do not overlap.
✓

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.
Key rule

No overlap between candle 1 and candle 3 across the relevant price range.

All lessons

01 · You are hereFair Value Gaps 02Inversion Fair Value Gaps 03Order Blocks 04Breaker Blocks 05Break of Structure 06Change of Character 07Change of Character Plus 08Equal Highs 09Equal Lows 10Liquidity 11Liquidity Grabs 12Premium & Discount Zones 13Propulsion Blocks 14Liquidity Sweeps 15Change in State of Delivery 16Balanced Price Range 17Breakaway Gap

Further reading

Educational content only — not investment advice. All charts in this lesson use constructed, illustrative data.