Fair Value Gap: The Mistake Most Traders Make

Fair Value Gap is a price inefficiency that forms when a strong directional move leaves a portion of the range untraded. It is not a literal gap in price and it does not carry the same numerical values that many traders assign to it.

What creates the inefficiency

A Fair Value Gap appears when one side of the market moves aggressively and skips over prices that would normally be exchanged. The skipped area is simply the space between the wick or body of one candle and the corresponding wick or body of a later candle in the same direction. Because no transaction occurred inside that space, price may later return to “fill” the missing activity.

Three rules that must be met

The gap is only considered valid when three conditions are satisfied. First, the levels that define it must be taken directly from the chart without borrowing numbers from other tools or indicators. Second, the pattern must be observed on the chart itself rather than taken from any published study or external reference. Third, price touching the edge of the gap does not count as filling it; the inefficiency is only considered addressed when price trades through the entire area.

Why the magnet assumption fails

Many traders treat every Fair Value Gap as an automatic target that price must revisit. In practice, some inefficiencies are revisited and others are left behind. The difference is not explained by the gap alone; it depends on the surrounding order flow and liquidity that the video addresses in later segments.