TradingIntermediate#Technical Analysis#Price Action
FVG (Fair Value Gap)
F
Definition
An analyst-defined three-candle price range with no overlap between the first and third candle's wicks after a fast move. It is a chart annotation, not proof of institutional activity, unfilled orders, future liquidity, or a likely price return.
Source reviewed
- CFTC: Learn to trade futures and options without getting scammed opens in a new tab
Supports: The CFTC warns that no trading strategy is foolproof or has guaranteed results, supporting explicit risk and test boundaries around chart-pattern claims.
- Marshall, Young and Rose: Market Timing with Candlestick Technical Analysis opens in a new tab
Supports: This study tests candlestick-based market-timing strategies and reports that they were not generally profitable in its tested large-US-stock sample, supporting the need for defined out-of-sample evaluation rather than predictive claims.
Concept Diagram
Key Takeaways
1
An FVG is an analyst-defined three-candle range whose exact appearance depends on feed, timeframe, and detection rule.
2
It does not prove institutional activity, unfilled orders, liquidity, or intent.
3
A later revisit or fill is not a forecast and does not establish a profitable entry rule.
4
Define and test the rule out of sample with costs, losses, drawdown, and invalidation before risking capital.
Practical Example
A trader marks a three-candle range on one venue's 4-hour chart using a written wick-to-wick rule. They record the timestamp and define a possible entry, invalidation, maximum loss, and no-trade condition before checking later candles. Whether price revisits the range is one observation in a tested sample, not evidence that it must fill or that a profitable trade exists.
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Related Terms
Trading
Liquidity SweepTrading slang for a rapid move through an observed price level followed by a reversal. The pattern alone does not show who traded, where stop orders sat, or whether manipulation occurred.
Market Structure
Order Block (OB)An informal chart zone, often drawn from a candle or range preceding a later move. It does not identify an order, its owner, its size, or an institutional entry point.
Market Structure
Liquidity VoidAn informal chart label for a rapid move or thinly traded price range. Candle data alone cannot establish that no orders or counterparties existed, or that price will return to the range.
Market Structure
DisplacementAn informal chart label for a rapid directional move over a chosen interval. It does not establish institutional intent, participation, or the future direction of price.
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