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Smart Money Concept (SMC)
Introduction to Smart Money Concept Market Structure in SMC Break of Structure and Momentum Shift Trading Range Explained Supply and Demand Trading Fair Value Gaps (FVG) Inversion FVG and Balanced Price Range (BPR) Volume Imbalance Trading

Fair Value Gaps (FVG)

Last Updated: 30 Sep, 2026

What Is an FVG?

An FVG is a price imbalance on a chart. It appears when the market moves so quickly in one direction that buyers and sellers do not get a fair chance to trade at every price level. This leaves an empty zone, or “gap”, on the chart. Traders who follow Smart Money Concepts believe price often returns to this zone before continuing its move.In simple terms, a fair value gap is a three-candle pattern where the wicks of the first and third candles do not overlap, leaving a visible space around the large middle candle.

How to Identify an FVG

Look for three consecutive candles:

  • Candle 1: the candle before the sharp move
  • Candle 2: a large, strong candle (the impulse move)
  • Candle 3: the candle after the move

The gap is the space between the wicks of Candle 1 and Candle 3.

Type  Pattern  Gap Zone 
Bullish FVG Strong green Candle 2 Between the high of Candle 1 and the low of Candle 3
Bearish FVG Strong red Candle 2 Between the low of Candle 1 and the high of Candle 3

Example of Nifty 50Assume that Nifty 50 is trading on a 15-minute chart:

  • Candle 1 has a high of 24,500.
  • Candle 2 is a big green candle that rallies sharply.
  • Candle 3 has a low of 24,560.

The zone between 24,500 and 24,560 is a bullish FVG. If price later dips back into this zone, some traders look for a buying opportunity.

How Traders Use FVGs

  • Entry zones: wait for price to return to the gap and show a reversal sign.
  • Trend confirmation: many FVGs forming in one direction suggest strong momentum.
  • Targets: unfilled gaps can act as price targets.
  • Support and resistance: a bullish FVG may act as support, a bearish one as resistance.

Step-by-Step Procedure

  1. Choose a timeframe, such as 5-minute or 15-minute for intraday, or daily for swing trading.
  2. Mark the FVG zone with a rectangle.
  3. Wait for the price to come back into the zone. Do not chase the move.
  4. Look for confirmation, such as a rejection candle or a reversal pattern.
  5. Place a stop-loss just beyond the gap.
  6. Set a target at the recent high or low, aiming for at least a 1:2 risk-reward ratio.

FVG Fill Status

Status Meaning
Unfilled Price has not returned to the gap
Partially filled Price entered the gap but did not cross it fully
Fully filled Price closed the entire gap, so the zone is usually treated as invalid

5 Top Tips for Indian Traders

  • Concentrate on liquid instruments: Nifty, Bank Nifty, and large-cap stocks like Reliance and HDFC Bank give cleaner patterns.
  • Watch the opening session: the 9:15 AM to 10:30 AM window on NSE often leads to strong impulse moves and gaps.
  • Use in combination with other tools: use volume, market structure, and support and resistance levels along with FVGs.
  • Check higher timeframes first: a gap on the daily or 1-hour chart is generally stronger than one on the 1-minute chart.
  • Be cautious during events: the Union Budget, RBI policy announcements, and results days can cause erratic moves that invalidate gaps quickly.

5 Common Mistakes to Avoid

  • Trading every gap you see
  • Ignoring the overall market trend
  • Entering without a stop-loss
  • Using very small gaps that are just market noise
  • Over-trading in Futures and Options (F&O) without proper risk management

Key Takeaways

  • An FVG shows where price moved too fast, leaving an imbalance.
  • It has three candles, and the gap sits between the wicks of the first and third.
  • Bullish gaps can act as support, and bearish gaps as resistance.
  • It’s not that every gap gets filled, hence always wait for confirmation.
  • Risk management is more important than any single pattern.