Fair Value Gap (FVG)
A three-candle imbalance where a strong middle candle leaves a price range the surrounding candles never overlap — an inefficiency the market tends to revisit and "rebalance."
A Fair Value Gap is a Smart Money Concepts pattern marking a price imbalance left by a fast, one-sided move. It forms across three candles: a bullish FVG exists when the high of the first candle is below the low of the third, leaving an untraded gap that the powerful middle candle skipped over; a bearish FVG is the mirror, where the first candle's low sits above the third's high. The range between those levels is the "fair value gap" — a zone price moved through so quickly that little two-sided trading occurred there.
The thesis is that the market dislikes inefficiency and tends to return to "rebalance" the gap, so an unmitigated FVG acts as a magnet and as support (a bullish FVG sitting below price) or resistance (a bearish FVG above it). Traders watch for price to retrace into the zone and react, often using the FVG as an entry area in the direction of the original impulse. An FVG is considered "mitigated" once price trades back into it — some treat a tap of the near edge as enough, others require a full fill. Recency matters: a fresh FVG inside an active move is a stronger draw than an old one.
FVGs are essentially the intrabar cousin of ordinary price gaps, and they share the same honest caveat — revisiting is a tendency, not a rule, and a strong trend can leave many FVGs unfilled for a long time as it runs. They are also more subjective than they appear: the raw three-candle definition flags a great many small gaps, especially on liquid instruments, so without a size filter the chart fills with noise. Their reliability improves markedly with confluence — an FVG that lines up with a support/resistance level, a structure break, or a high-volume node is far more likely to produce a reaction than one floating alone. Used as a context zone paired with a trigger they are valuable; used as a standalone "price will fill this gap" signal they disappoint about as often as they deliver.
This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.