Definition

Fair Value Gap (FVG) is an unfilled price zone between two candles created when price gaps up/down without trading all levels in between, creating an imbalance that price typically returns to fill within 5-30 bars.

Source: Inner Circle Trading (ICT) Method

Fair Value Gaps are supply/demand imbalances. When price gaps up sharply, it leaves untouched supply below. When price gaps down, it leaves untouched demand above. Price abhors imbalance — it returns to fill the gap 70%+ of time.

FVGs are highest-probability reversal zones. Identify the gap, wait for price return, trade the reversal.

How FVGs Form

Bullish FVG (Gap Up)

Formation:

  1. Stock closes at $100
  2. Next day opens at $105 (gaps up)
  3. Zone $100–$105 = untouched supply
  4. Creates bullish FVG (buyers rushed in, left sellers in the dust)

What it means: Demand exceeded supply; buyers desperate. But that $100–$105 zone will attract sellers when price returns (supply will sell).

Lifespan: 5–30 days typically. When filled, reversal probable.

Bearish FVG (Gap Down)

Formation:

  1. Stock closes at $100
  2. Next day opens at $95 (gaps down)
  3. Zone $95–$100 = untouched demand
  4. Creates bearish FVG (sellers rushed out, left buyers in dust)

What it means: Supply exceeded demand; sellers desperate. But that $95–$100 zone will attract buyers when price returns (demand will buy).

Lifespan: 5–30 days typically. When filled, reversal probable.

How to Trade Fair Value Gaps

FVG Fill Reversal Setup (70%+ Win Rate)

  1. Identify FVG — Price gap up or down with untouched zone
  2. Mark the zone — High and low of untouched gap
  3. Wait for price return — Price pulls back toward bullish FVG or rallies toward bearish FVG
  4. Enter when price reaches gap — At boundary of gap
  5. Confirm with candlestick — Hammer, doji, or reversal pattern at gap
  6. Stop loss — Beyond the gap (tight stop)
  7. Target — Prior resistance/support or 50% of prior move

Win rate: 70–75% on FVG reversals with pattern confirmation.

FVG + Order Block Confluence (Extreme Probability)

When FVG overlaps with old order block = both supply/demand imbalance (gap) + institutional zone (order block) = extreme probability.

Example:

  • FVG formed 10 days ago between $95–$100
  • Old order block also at $97 (institutional zone)
  • Price returns to $97 level = both gap + order block
  • Reversal probability: 75–85% (highest available)

Setup: Enter tightest stops when FVG + order block align. Highest win rate possible.

Common Mistakes

✗ Mistake 1

"Every gap will fill; I'll short it."
Some gaps don't fill for months or ever (strong trend). Reality: Trade only gaps forming in choppy/sideways markets. In strong trends, gaps sustain.

✗ Mistake 2

"I buy/short the gap formation day."
Entering on gap day = catching falling knife. Reality: Wait for gap to form (close above/below gap), then trade return to gap zone 5–20 days later.

✗ Mistake 3

"Old gaps never fill; they're irrelevant."
Old gaps (1–3 months) still fill 60–70% of time. Price has long memory. Reality: Monitor all gaps. Older gaps on radar for future fills.

Example: FVG + Order Block (Microsoft, MSFT)

Bullish FVG fills with order block confirmation:

Trade Log: FVG + Order Block Reversal MSFT · Daily · FVG Trading
Date Price Event Volume Signal / Action P&L
$420.00 Close Normal MSFT closes at $420 after normal trading. —
$435.00 🟡 Gap Up 2.2x volume 🟡 BULLISH FVG FORMS. Opens at $432, gaps past previous close ($420). Untouched zone: $420–$432 = supply gap. Mark it. —
$442.00 Rally Normal Price continues higher ($442). Gap still unfilled. Waiting for return. —
$460.00 High Normal Price peaks at $460. FVG still untouched. Reversal likely coming. —
$428.00 🟡 Return to gap 1.8x volume 🟡 PRICE RETURNS TO FVG ZONE ($420–$432). Touches $428 (in gap). Hammer pattern forms. Old order block at $427 (confluence!). —
$437.00 Bounce 2.5x volume 🟢 FVG FILLS + REVERSAL CONFIRMED. Price bounces from gap on volume. ENTER LONG. Stop: $422 —
$455.00 Target High FVG reversal delivers. Price bounces to prior resistance ($455). Exit position. +6.5%
Key Insight

The bullish FVG formed May 13 ($420–$432). Price returned Jun 5, hitting the gap at $428 (hammer). But the real confirmation was the old order block at $427 — both FVG + order block aligned. This 75\">75–85% probability confluence caught a $27 bounce ($428 → $455) in 10 days. FVG + order block = highest probability reversal available.

How Cluenex Uses FVGs

Cluenex AI ingests Fair Value Gaps from the past 3–6 months of price history as inputs when calculating predicted short-term and long-term price movement for each stock. FVGs aren’t displayed directly on the Cluenex platform, but the AI processes gap zones, gap age, and proximity to price continuously.

When price approaches a historical FVG zone, that signal feeds into the AI’s prediction models — influencing the short-term sentiment score and price forecast visible on the platform. Cluenex AI digests all of these metrics, even those not shown on the frontend, to deliver the most accurate price movement forecasts.

Frequently Asked Questions

  • How long before a gap fills? 5–30 days typical. Some fill within hours (intraday), others take weeks. Monitor all gaps; fill timing varies.

  • Do all gaps fill? 70–75% fill. Remaining 25–30% don’t fill for months/ever (strong trends). But probability favors filling.

  • Can I trade gap-down openings? Yes. Gap down creates demand gap above. Price returns to fill it 70%+ of time. Trade the bounce.

  • FVG vs traditional gap (earnings, news)? Same principle. Both create imbalances. News gaps fill slower (days/weeks). Regular gaps fill faster (hours/days).

  • Should I fade gaps or trade their direction? Both work. Fading (trading the reversal) = 70% win rate. Trading with gap = lower probability (30–50%). Fade for edge.