A Fair Value Gap (FVG) forms when the market moves with such momentum that an imbalance is created between the high of the first candle and the low of the third candle. This gap represents an area where price did not fully trade — institutional algorithms are known to return to these zones to "fill" the imbalance before continuing in the original direction.
In ICT (Inner Circle Trader) methodology, FVGs are treated as high-probability entry zones. A bullish FVG forms when price drives upward aggressively, leaving a gap between candle 1's high and candle 3's low. A bearish FVG is the inverse — a downward gap between candle 1's low and candle 3's high.
Traders use FVGs by waiting for price to retrace into the gap and look for confirmation entries such as a shift in market structure, an order block, or a liquidity sweep before entering in the direction of the original impulse. The 50% level (equilibrium) of the FVG is often treated as the key magnet price.
When journaling FVG trades, note whether price filled the gap fully, tapped the 50% level, or rejected before filling. This data over a large sample helps you understand how your specific instrument (NQ, ES, GC, etc.) respects imbalances.