What is a fair value gap?
A fair value gap is a stretch of prices the market skipped. It takes exactly three candles to make one, and one rule to find it.
Most of the time, consecutive candles overlap: the next candle trades back through some of the ground the last one covered. Buyers and sellers get a second look at those prices, and trading feels two-sided.
Sometimes price moves too fast for that. One candle drives so hard in one direction that the candles on either side of it never touch each other's range. The prices in between printed only once, inside a single violent candle — the market never paused to trade them properly. That untraded span is a fair value gap (FVG), and the idea comes from ICT-style market-structure analysis: fast moves leave an imbalance behind.
The three-candle rule
Take any three consecutive candles. Call the middle one the displacement candle. A bullish FVG exists when the low of candle 3 is above the high of candle 1 — the zone between those two prices is the gap. A bearish FVG is the mirror image: candle 3's high sits below candle 1's low.
That's the entire definition. No indicators, no settings — just three candles and one comparison. On a liquid index ETF like QQQ, dozens of these print every session on a 5-minute chart; most are noise-sized, which is why scanners filter out gaps smaller than a fraction of a percent of price.
Why anyone cares
The market-structure reading is that a gap marks prices where trading was one-sided. When price later retraces back into the zone, observers watch closely: does the zone hold and price reject back in the original direction, or does price slice through as if the level meant nothing? Either answer is information about who is in control.
That's why a gap is best understood not as a static rectangle but as a process — it forms, it gets revisited, and it resolves one way or the other. That process is the subject of the next guide.