A way to read price action around fast, one-sided moves
Fair Value Gaps (FVGs) are one of the core ideas in Smart Money Concepts (SMC) trading. A gap marks a price range the market moved through so quickly that little two-way trading took place there.
Traders who use SMC often watch these zones as possible areas for a retracement or reaction. That is a working hypothesis, not a prediction: price can return to a gap and continue straight through it, or never return at all.
What Is a Fair Value Gap?
A Fair Value Gap (or imbalance) is a three-candle pattern: there is a gap between the first and third candles' wicks, created by a large second candle. It suggests price moved quickly and may later return to trade through ("fill") that range.
Traders look at FVGs because they can:
- Mark areas of interest where price may revisit
- Line up with liquidity sweeps or order blocks
- Give a defined zone for planning an entry and a stop
Why FVGs Matter in Smart Money Trading
SMC traders focus on price structure rather than lagging indicators, and FVGs are one part of that read. They can highlight:
- Where price moved inefficiently through a range
- Zones where larger participants may have left unfilled orders
- Areas price sometimes revisits before continuing
FVGs are usually combined with other context, such as:
- Market structure shifts
- Liquidity grabs
- Premium/discount zones
On their own they are common and frequently fail; confluence is what gives a zone more weight.
Spotting FVGs Automatically
If you use TradingView, my free script, the Imbalance Finder, marks these zones on the chart.
The script:
- Highlights imbalances using 3-candle logic
- Draws boxes for visual structure
- Shows if price is actively filling a gap (solid → dashed)
It is lightweight and customizable. It marks zones; it does not tell you which ones will hold.
Example FVG Strategy
Here is a basic framework using FVGs and market structure:
- Identify a recent break of structure (BOS)
- Look for an FVG below (in an uptrend) or above (in a downtrend)
- Wait for price to return to the FVG zone
- Enter on confirmation (e.g. bullish engulfing, lower-timeframe BOS)
- Stop loss below the FVG or structure low
- Target previous swing high or next liquidity pool
Test any variation on historical charts before risking money, and size positions so a failed zone is a small, planned loss.
Practical Considerations
- Lower timeframes produce many more gaps, and most are noise.
- A gap that forms against the higher-timeframe trend is more likely to be run through.
- Releases such as CPI or payrolls can create gaps in seconds; check the economic calendar before relying on a zone.
Updates
I'm working on an extended version of the indicator (multi-timeframe detection, alerts, fill tracking). There is no release date yet. Follow me on TradingView for updates.
– PatrickWS