Fair Value Gap (FVG) and Inverse FVG

What a fair value gap is

Take three consecutive candles. In a bullish fair value gap, the low of the third candle is above the high of the first candle. The space between those two prices, which sits inside the range of the middle candle, was crossed quickly and not traded through by both buyers and sellers. In a bearish fair value gap the third candle high is below the first candle low.

Traders describe that stretch as an imbalance: orders were so one-sided that price skipped the area. The word fair value in the name is a label, not a calculation of what the instrument is worth.

Why traders watch them

The common observation is that price often returns to trade back into such a gap later, sometimes filling it entirely and sometimes only partway. Some traders treat the gap as a zone that may act as support or resistance on a retest. Others use the midpoint of the gap, sometimes called consequent encroachment, as a more specific reference.

This is a tendency reported by traders, not a rule. Many gaps are never revisited, and many are revisited and ignored. A gap does not predict direction. It marks an area where the market moved quickly, which is why it often appears alongside displacement and breaks of structure.

Inverse fair value gap (IFVG)

An inverse fair value gap is a fair value gap that has failed to hold. Suppose a bullish gap forms and price later closes decisively below it. The same zone that was expected to act as support has been broken, and some traders then treat it as resistance. The zone is reused with the opposite meaning, hence the word inverse.

The difference between an FVG and an IFVG is therefore not the shape but the outcome. An FVG is a gap that is respected or not yet tested. An IFVG is a gap that was closed through and is read as having flipped. The classification happens after the fact, so a gap can start as an FVG and become an IFVG.

FVG, imbalance and order block compared

Imbalance is a broader word for any area where price moved quickly with little two-sided trade, and a fair value gap is the specific three-candle version. An order block, covered separately, is the last opposing candle before a strong move and is a single candle rather than a gap between candles. Traders often look for an order block and a fair value gap in the same area, treating overlap as a stronger reference.

A simple way to practice

On a chart, mark every three-candle gap on one timeframe over a week. Track which gaps price returned to, how deeply, and what happened at the first touch. Track IFVGs separately: gaps that were closed through and then respected from the other side. The record shows how often gaps matter in your instrument and which sizes or sessions behave differently.

Worked example

Common mistakes

• Marking every tiny gap on a small timeframe. Most are noise.
• Assuming price must fill the gap. Many gaps are never revisited.
• Confusing a fair value gap with the overnight gap between a close and an open.
• Labeling a gap as inverse before it has actually been closed through.

How it connects to ES, NQ, SPY and QQQ

Fair value gaps appear on ES and NQ charts at any timeframe, and many show up in thin overnight trading. Translating gap edges into SPY and QQQ prices, using roughly 10 and 41, gives ETF reference levels for the cash session.

The overnight gap between the cash close and the next open is a different concept, covered in the Academy page on gap fills. A fair value gap is a pattern inside a few candles, while the overnight gap is a distance between sessions.

Note: terms like this come from price-action frameworks popular with retail traders. They describe patterns after the fact; they are not validated predictors.

Frequently asked questions