A fair value gap, or FVG, is a price imbalance left by a fast, one-sided move. It appears as a three-candle pattern where the first and third candles do not overlap, leaving a gap between them. SMC treats this gap as an inefficiency the market tends to revisit and fill.
Why FVGs matter
The move that creates an FVG was so aggressive that price skipped past a range without two-sided trading — an inefficiency. Markets tend to seek efficiency, so price often returns to rebalance the gap before continuing. That return is what SMC traders use for an entry.
How to find a valid FVG
- Look for three candles where candle 1's wick and candle 3's wick leave a gap.
- The stronger and more impulsive the middle candle, the more meaningful the gap.
- FVGs aligned with the trend and order flow are higher quality.
- Not every gap fills, and some fill only partially, so it is a probability not a rule.
Entry and stop logic
A common approach is a limit at the gap or entering as price taps it with confirmation. Many traders watch the 50% level of the gap as the decision point. The stop sits beyond the gap or the origin of the move, and the target is the next liquidity pool. Combine the FVG with structure — a gap alone is a weak signal.
A fair value gap is a three-candle imbalance price often rebalances — use it as an entry zone, not a stand-alone signal.