ADVANCED FOREX · ICT · LESSON 04
Fair Value Gaps (FVG) and Imbalances
Learn to recognize a three-candle fair value gap, distinguish bullish and bearish imbalances, and assess mitigation and invalidation without assuming that every gap will fill.
- Identify bullish and bearish three-candle FVGs.
- Mark an FVG zone using candle-one and candle-three wicks.
- Explain mitigation, partial fills and invalidation.
- Combine FVG observations with market structure and risk controls.
1. What is a fair value gap?
In ICT-style price analysis, a fair value gap (FVG) is a three-candle pattern in which the first and third candles' wick ranges do not overlap, leaving an area of relatively rapid price movement. The middle candle is often a strong displacement candle. The term describes a chart pattern; it does not prove an exchange-level order imbalance or guarantee a return to the zone.
2. Bullish FVG
A bullish FVG forms when the low of candle three is above the high of candle one. Mark the area between candle one's high and candle three's low. Candle two typically shows upward displacement.
3. Bearish FVG
A bearish FVG forms when the high of candle three is below the low of candle one. Mark the area between candle three's high and candle one's low. Candle two typically shows downward displacement.
4. Why displacement matters
Displacement refers to a relatively forceful move, often featuring a larger candle body and less overlap with surrounding candles. A clear displacement leg can make the FVG easier to recognize, but candle size alone does not establish institutional activity or future direction.
5. Mitigation, partial fill and invalidation
Mitigation is the common ICT term for price revisiting an FVG. Price may touch its edge, trade partway through, fill the entire zone or never revisit it. Define in advance what would invalidate your observation; do not move the invalidation level simply to keep a hypothesis alive.
- Identify the higher-timeframe trend or trading range.
- Locate a three-candle pattern and mark exact FVG boundaries.
- Check whether displacement and market structure support the context.
- Observe whether price revisits the zone and how it reacts.
- Record the alternative scenario and a fixed risk limit for any demo trade.
6. FVG versus an ordinary chart gap
An ICT FVG can occur within continuous intraday candles and is not necessarily a session-opening gap. It is defined by non-overlap between candle one and candle three, not by an empty space between two consecutive candle bodies.
7. Worked chart practice
8. Common mistakes
- Marking any large candle as an FVG without checking the three-candle wick relationship.
- Assuming every FVG must fill or trigger a reversal.
- Ignoring nearby liquidity, news volatility, spread and higher-timeframe context.
- Entering a leveraged position without a predetermined loss limit.
Knowledge check
← Back to ICT Lessons · ← Lesson 03
9. FVG validation: a step-by-step case study
Imagine a fifteen-minute chart where price has already broken above a well-defined swing high. Before calling the next three-candle formation a bullish fair value gap, identify the exact first-candle high and third-candle low. If those wick prices overlap, the strict three-candle FVG condition is absent, even if the middle candle looks unusually large. Record the candle timestamps so the zone can be checked later without hindsight.
Next, compare the candidate zone with the higher-timeframe direction and the nearest obvious liquidity levels. A gap that appears directly beneath major resistance has different context from one formed after a clear structural break. Draw the upper and lower boundaries of the gap, and decide whether your study treats a touch, a midpoint revisit, or a full fill as mitigation. These are separate observations, not interchangeable confirmations.
For a paper-trading example, suppose the bullish gap spans 1.2050 to 1.2060. Price returns to 1.2056, pauses, then falls through 1.2050. That sequence shows a partial revisit followed by a potential invalidation under a rule requiring the lower boundary to hold. A different trader might use a candle close or a structural low as invalidation. Write down your chosen rule before reviewing the outcome.
Finally, log examples where price never revisits the gap and where it fills the gap without reversing. Include spread, session and scheduled news in the notes. Comparing winning and losing examples is more useful than collecting only attractive screenshots. FVGs describe chart geometry; they do not prove where institutions placed orders or guarantee a reaction.