A fair value gap (FVG) is a three-candle price pattern in which the wicks of the first and third candles do not overlap, leaving a band of prices traded only during the fast middle candle. The mechanical reading: a bullish FVG exists when candle A’s high is below candle C’s low — the gap is the zone between those two prices; a bearish FVG exists when candle A’s low is above candle C’s high.
The concept comes from ICT (Inner Circle Trader) methodology, which treats the gap as an imbalance the market often revisits. The common play is to wait for price to retrace into the gap — frequently to its midpoint, called consequent encroachment — and trade the continuation.
Beyond the three-candle geometry, definitions diverge: traders disagree on which FVGs count (only those formed by displacement, only unfilled ones, minimum size), so any specific FVG entry rule is a hypothesis to test, not a settled standard.