Fair Value Gap (FVG)

Strategy & Analysis

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According to Vigil's prop trading glossary, Fair Value Gap (FVG) is a price imbalance on a chart where a candle's range does not overlap with the candle two bars prior, creating a "gap" in fair value. Traders expect price to revisit and fill these gaps, using them as entry zones. In prop trading, understanding fair value gap (fvg) is critical because it directly affects your drawdown limits, position sizing, and whether you pass or fail an evaluation.

This term is part of the full prop firm glossary.

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How does fair value gap (fvg) work?

Fair value gaps are a core concept in ICT (Inner Circle Trader) methodology, widely used by prop firm traders. An FVG forms when there is aggressive buying or selling that creates a three-candle pattern where the high of candle 1 does not overlap with the low of candle 3 (bullish FVG) or the low of candle 1 does not overlap with the high of candle 3 (bearish FVG).

The theory is that these gaps represent inefficient price delivery. Smart money (institutional traders) and algorithms tend to revisit these zones to rebalance order flow. Prop firm traders use FVGs as high-probability entry zones with defined risk -- entering when price retraces to the gap and placing stop-losses below/above the gap.

FVGs work particularly well in prop firm trading because they provide precise entry and stop-loss levels, which helps with position sizing and risk management. A narrow FVG means a tight stop, allowing larger position sizes within your risk limits.

What does fair value gap (fvg) look like in practice?

ES 5-minute chart: Candle 1 high = 5200. Candle 2 (impulse) ranges 5200-5215. Candle 3 low = 5208. Bullish FVG exists between 5200 and 5208 (8 points). Price retraces to 5204 (middle of FVG). You enter long at 5204 with stop at 5198 (6 points below FVG low). On TopStep $100K with 1 ES contract: risk = 6 points * $50 = $300. Target: 5220 (16 points). Reward: $800. R:R = 1:2.67.

Why does fair value gap (fvg) matter for prop firm traders?

Fair Value Gap (FVG) under prop firm constraints plays out differently than on a personal account. Drawdown limits and profit targets change the math.

Practical example across firms: FTMO: 2-step, static drawdown, 5% daily loss, from €155. TopStep: 1-step, trailing drawdown, 2% daily loss, from $49.

Common mistake: The most common mistake with fair value gap (fvg): switching approaches mid-evaluation because of a short drawdown. The strategy you know, sized for the constraints, beats an unfamiliar system every time.

How do different firms handle fair value gap (fvg)?

Understanding fair value gap (fvg) is essential when choosing and trading with a prop firm. Compare how different firms handle this:

What terms are related to fair value gap (fvg)?

Order Block

The last opposite-direction candle before a significant price move, believed to represent institutional accumulation or distribution. Traders use order blocks as support/resistance zones where smart money is likely to defend price.

Market Structure

The pattern of higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend) that defines the current directional bias. A break of structure (BOS) occurs when price violates the most recent swing point, signaling a potential trend change.

Liquidity Sweep

A price movement that briefly breaks past a key level (swing high/low, equal highs/lows) to trigger stop-losses and pending orders resting at those levels, before quickly reversing. Also called a "stop hunt" or "liquidity grab."

Risk-Reward Ratio

The relationship between the potential loss (risk) and potential gain (reward) on a trade, expressed as a ratio like 1:2 or 1:3. A 1:2 ratio means you risk $1 to potentially make $2.

See fair value gap (fvg) in action
Where can I learn more?

How to Pass FTMO $200,000

Step-by-step guide

How to Pass TopStep $150,000

Step-by-step guide

How to Pass Apex Trader Funding $300,000

Step-by-step guide

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