The Fair Value Gap, or FVG, is a three-bar pattern at the centre of modern SMC and ICT methodologies. It marks a price range that was never properly traded through — left behind by a fast, decisive move. The theory says price often returns to fill these zones, and sometimes reverses from them.
There are two variants: bullish and bearish. Both follow the same mechanic, mirrored.
A bullish FVG forms when the low of bar 3 is higher than the high of bar 1. The two outer bars do not overlap, and the middle bar (bar 2, the displacement bar) was strong enough to leave a gap behind it. That gap is the FVG — an unfilled price range above bar 1’s wick and below bar 3’s wick.
SMC traders treat this zone as a potential support area. Price often returns to it, taps the level, and may resume the upward move from there.
A bearish FVG is the mirror. It forms when the high of bar 3 is lower than the low of bar 1. The middle bar this time is a strong red candle, displacing price down hard enough to leave a gap behind it. The zone sits below bar 1’s wick and above bar 3’s wick.
Treated as a potential resistance area. Price returning to the zone often gets rejected and the downward move resumes.
The displacement bar moved so fast that normal price discovery did not occur within the gap. There was an imbalance — buyers (or sellers) overwhelmed the other side, and the level was skipped rather than traded. SMC theory says the market “remembers” these unfilled zones and often returns to them.
Some traders distinguish between high-volume and low-volume FVGs. A gap created on heavy volume is treated as a stronger imbalance that holds as support or resistance. A gap created on thin volume is treated as weaker — more likely to be revisited and reversed. Both readings exist in the methodology and both have their proponents.
The honest caveat: not every FVG plays out. The pattern is common, and treating every single one as a tradeable level is the fastest way to have no edge at all. Filtering — by location, trend, volume, or confluence with other levels — is what separates traders who use the concept usefully from traders who chase every gap they see.
Key insight: FVGs are not all equal. A gap formed at a major level, in the direction of the higher-timeframe trend, with a strong displacement bar, is a high-quality setup. A gap formed in the middle of consolidation, against the trend, on a marginal displacement bar, is noise. The work is filtering the second kind out, not finding more of them.
The other half is what’s happening in your head when you’re in the trade. Fear, ego, revenge trading, breaking your own stops — that’s where most accounts actually lose money. Not bad setups.