Trade imbalances left behind by rapid institutional moves.
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Overview
A Fair Value Gap (FVG) is a three-candle price imbalance pattern that forms when price moves so aggressively in one direction that the wicks of the first and third candles do not overlap. The resulting gap represents a zone where no two-sided trading took place β in other words, supply and demand never had a chance to reach equilibrium.
The concept is rooted in Smart Money Concepts (SMC) and Inner Circle Trader (ICT) methodology. Institutional participants routinely move price in quick, aggressive bursts to accumulate or distribute large positions. These rapid moves leave behind an unfilled void β the FVG β that price frequently returns to fill before resuming in the original direction.
Traders identify bullish FVGs as zones of support and bearish FVGs as zones of resistance. A bullish setup involves price dropping back into a bullish FVG and reversing upward; a bearish setup involves price rising into a bearish FVG and rolling over. The FVG zone itself is often used as the entry area, with a stop placed just beyond the zone and a take-profit at the next significant high or low.
FVGs are particularly effective on higher timeframes (4H, daily) where institutional activity is most visible, and can be used to time entries on lower timeframes for precision. Combining FVG analysis with liquidity sweeps (stop hunts) and market structure breaks significantly improves signal quality.
Strategy Code
This is a TradingView Pine Script strategy example for this page concept. Paste it into the TradingView Pine Editor, add it to your chart, and run it in the Strategy Tester.
//@version=6
strategy("Fair Value Gap (FVG) Strategy", overlay=true)
emaFast = ta.ema(close, 20)
emaSlow = ta.ema(close, 50)
bullStructure = close > emaFast and emaFast > emaSlowThis is a thinkorswim ThinkScript strategy example for this page concept. Open thinkorswim, create a custom strategy, paste the script, and apply it to your chart.
def fast = ExpAverage(close, 20);
def slow = ExpAverage(close, 50);
def liquidityGrab = low < Lowest(low, 10)[1] and close > open;
def buySignal = close > fast and fast > slow and liquidityGrab;
def sellSignal = close < fast;Join thousands of traders who use auto-Trading to execute this strategy automatically, 24/7.
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