What Is a Fair Value Gap (FVG)? Three-Candle Rule and Examples
A fair value gap (FVG) is an area where price moved so fast that the wicks of the first and third candle in a three-candle sequence do not overlap, leaving an imbalance in the middle.
The three-candle rule
- Bullish FVG: candle 1 high is below candle 3 low. The gap runs from candle 1's high up to candle 3's low.
- Bearish FVG: candle 1 low is above candle 3 high. The gap runs from candle 3's high up to candle 1's low.
Candle 2, the middle candle, is usually the strong one — often a displacement candle.
A gold example
Candle 1 high 3311.30. Candle 2 rockets up. Candle 3 low 3314.00. The bullish FVG spans 3311.30 – 3314.00, a 2.7-point gap, with a midpoint of 3312.65.
Why traders watch it
The idea is that price often returns to rebalance an imbalance before continuing. That makes the gap a candidate entry area after a move — see FVG mitigation and the 50% entry.
Minimum size
Tiny gaps are noise. BlessedForex ignores gaps smaller than a configurable minimum (0.30 points by default on gold).
Not a trade on its own
An FVG appears constantly. It only becomes interesting when it forms after a sweep, with displacement and a structure shift, in a favourable premium/discount area. Requiring several confirmations is the point of a rule-based setup.
Never deleted
Gaps are tracked from 0% to 100% filled and are kept once filled or invalidated, so past setups and backtests remain auditable.
Common mistakes
- Marking gaps between candles that do not follow the exact three-candle rule.
- Trading every gap instead of those aligned with bias.
Questions & answers
What is the difference between an FVG and an imbalance?
Many traders use the terms interchangeably. Fair value gap is the specific three-candle definition; imbalance is the general idea of one-sided buying or selling.
Does price always fill a fair value gap?
No. Some gaps are never revisited, and others are filled completely and then ignored. Treat them as areas of interest.
What makes an FVG invalid?
In BlessedForex, a candle closing beyond the far side of the gap invalidates it — for a bullish gap, a close below its lower edge.
Which timeframe should I use?
Gaps on higher timeframes are larger and more significant. BlessedForex looks for entry gaps on M5 within a higher-timeframe bias.