Definition

Fair Value Gap (FVG) is an unfilled price zone between two candles created when price gaps up/down without trading all levels in between, creating an imbalance that price typically returns to fill within 5-30 bars.

Source: Inner Circle Trading (ICT) Method

Fair Value Gaps are supply/demand imbalances. When price gaps up sharply, it leaves untouched supply below. When price gaps down, it leaves untouched demand above. Price abhors imbalance — it returns to fill the gap 70%+ of time.

FVGs are highest-probability reversal zones. Identify the gap, wait for price return, trade the reversal.

How FVGs Form

Bullish FVG (Gap Up)

Formation:

  1. Stock closes at $100
  2. Next day opens at $105 (gaps up)
  3. Zone $100–$105 = untouched supply
  4. Creates bullish FVG (buyers rushed in, left sellers in the dust)

What it means: Demand exceeded supply; buyers desperate. But that $100–$105 zone will attract sellers when price returns (supply will sell).

Lifespan: 5–30 days typically. When filled, reversal probable.

Bearish FVG (Gap Down)

Formation:

  1. Stock closes at $100
  2. Next day opens at $95 (gaps down)
  3. Zone $95–$100 = untouched demand
  4. Creates bearish FVG (sellers rushed out, left buyers in dust)

What it means: Supply exceeded demand; sellers desperate. But that $95–$100 zone will attract buyers when price returns (demand will buy).

Lifespan: 5–30 days typically. When filled, reversal probable.

How to Trade Fair Value Gaps

FVG Fill Reversal Setup (70%+ Win Rate)

  1. Identify FVG — Price gap up or down with untouched zone
  2. Mark the zone — High and low of untouched gap
  3. Wait for price return — Price pulls back toward bullish FVG or rallies toward bearish FVG
  4. Enter when price reaches gap — At boundary of gap
  5. Confirm with candlestick — Hammer, doji, or reversal pattern at gap
  6. Stop loss — Beyond the gap (tight stop)
  7. Target — Prior resistance/support or 50% of prior move

Win rate: 70–75% on FVG reversals with pattern confirmation.

FVG + Order Block Confluence (Extreme Probability)

When FVG overlaps with old order block = both supply/demand imbalance (gap) + institutional zone (order block) = extreme probability.

Example:

  • FVG formed 10 days ago between $95–$100
  • Old order block also at $97 (institutional zone)
  • Price returns to $97 level = both gap + order block
  • Reversal probability: 75–85% (highest available)

Setup: Enter tightest stops when FVG + order block align. Highest win rate possible.

Common Mistakes

✗ Mistake 1

"Every gap will fill; I'll short it."
Some gaps don't fill for months or ever (strong trend). Reality: Trade only gaps forming in choppy/sideways markets. In strong trends, gaps sustain.

✗ Mistake 2

"I buy/short the gap formation day."
Entering on gap day = catching falling knife. Reality: Wait for gap to form (close above/below gap), then trade return to gap zone 5–20 days later.

✗ Mistake 3

"Old gaps never fill; they're irrelevant."
Old gaps (1–3 months) still fill 60–70% of time. Price has long memory. Reality: Monitor all gaps. Older gaps on radar for future fills.

Example: FVG + Order Block (Microsoft, MSFT)

Bullish FVG fills with order block confirmation:

Trade Log: FVG + Order Block Reversal MSFT · Daily · FVG Trading
Date Price Event Volume Signal / Action P&L
$420.00 Close Normal MSFT closes at $420 after normal trading. —
$435.00 🟡 Gap Up 2.2x volume 🟡 BULLISH FVG FORMS. Opens at $432, gaps past previous close ($420). Untouched zone: $420–$432 = supply gap. Mark it. —
$442.00 Rally Normal Price continues higher ($442). Gap still unfilled. Waiting for return. —
$460.00 High Normal Price peaks at $460. FVG still untouched. Reversal likely coming. —
$428.00 🟡 Return to gap 1.8x volume 🟡 PRICE RETURNS TO FVG ZONE ($420–$432). Touches $428 (in gap). Hammer pattern forms. Old order block at $427 (confluence!). —
$437.00 Bounce 2.5x volume 🟢 FVG FILLS + REVERSAL CONFIRMED. Price bounces from gap on volume. ENTER LONG. Stop: $422 —
$455.00 Target High FVG reversal delivers. Price bounces to prior resistance ($455). Exit position. +6.5%
Key Insight

The bullish FVG formed May 13 ($420–$432). Price returned Jun 5, hitting the gap at $428 (hammer). But the real confirmation was the old order block at $427 — both FVG + order block aligned. This 75\">75–85% probability confluence caught a $27 bounce ($428 → $455) in 10 days. FVG + order block = highest probability reversal available.

How Cluenex Uses FVGs

Cluenex auto-identifies all FVGs from past 3–6 months. When price approaches gap zone, traders see:

  • FVG location (price zone)
  • Gap age (days since formed)
  • Order blocks near gap (confluence zones)
  • Probability of fill based on historical accuracy
  • Real-time alerts when price entering gap zone

Frequently Asked Questions

  • How long before a gap fills? 5–30 days typical. Some fill within hours (intraday), others take weeks. Monitor all gaps; fill timing varies.

  • Do all gaps fill? 70–75% fill. Remaining 25–30% don’t fill for months/ever (strong trends). But probability favors filling.

  • Can I trade gap-down openings? Yes. Gap down creates demand gap above. Price returns to fill it 70%+ of time. Trade the bounce.

  • FVG vs traditional gap (earnings, news)? Same principle. Both create imbalances. News gaps fill slower (days/weeks). Regular gaps fill faster (hours/days).

  • Should I fade gaps or trade their direction? Both work. Fading (trading the reversal) = 70% win rate. Trading with gap = lower probability (30–50%). Fade for edge.