How to Find a Fair Value Gap
To find a fair value gap, look for three consecutive candles where the first candle's high sits below the third candle's low, or the reverse. The untouched range between them is the gap, and it is a mechanical pattern you can scan for rather than a judgement.
A fair value gap is a three-candle pattern where price moved fast enough that the first and third candles do not overlap. The definition is mechanical, which makes it the most testable idea in this family of concepts.
Before you start
A three-candle pattern definition you can state, because the term is used for several things. First candle’s high below third candle’s low, for an upward gap. Two comparisons.
A minimum size, since a one-tick gap is not an imbalance. On this site’s shared series the median bar range is 0.493, so a sensible floor is a fraction of that rather than any non-zero gap.
A rule for when the gap is spent and comes off the chart. Once price has traded through it, it is gone. Without that, the chart accumulates zones indefinitely.
The steps
1. Take three consecutive candles
The middle one is the move. The first and third are what get compared, and the comparison is entirely mechanical.
2. Compare the first high to the third low
If the first candle’s high is below the third candle’s low, there is an upward gap between them. The reverse gives a downward one.
3. Check it clears your minimum size
A gap of one or two ticks is a feature of how the bars were drawn, not evidence of anything. Your written minimum removes most of the noise.
4. Mark the range and leave it
The untouched range is the zone. Extending it later because price reacted near the edge is how a precise pattern becomes an area that always works.
5. Expect most of them to fill
Price returning through the gap is the common case. That is not a signal, it is what the pattern usually does, and treating every fill as an event produces constant activity.
6. Require a reaction, not just an arrival
Price entering the zone is arithmetic. Price entering it and being rejected is behaviour, and only the second one is evidence about what participants did there.
7. Take the stop beyond the gap
Past the opposite edge of the zone. That distance sets the position size, and a wide gap means a smaller position rather than a tighter stop.
How to tell it worked
The pattern was found by 2 mechanical comparisons, not by eye.
Every gap clears your stated minimum size, measured against ordinary bar range.
0 zones were widened after being drawn.
And gaps price traded through were removed within 1 day, so the chart stays current.
Why this one is more testable than its neighbours
Because the definition is arithmetic. Two comparisons on three candles produces the same answer for everybody, which means a scan can find every instance in a decade of data and count what happened next.
Which also makes its weaknesses measurable. In an illiquid instrument the pattern appears constantly because there is simply nobody trading between the prices, and a scan will find hundreds of gaps that mean nothing at all.
What the gap is supposed to represent
The claim is that price moved too quickly for orders to fill, leaving unfinished business. That is an interpretation, and it is the same interpretation attached to several other patterns in this framework.
What the chart shows is simply that price moved fast. A large middle candle with non-overlapping neighbours is a description of speed, and speed is real information without needing the story.
The weaker claim is the useful one. A zone price crossed quickly is a place where less trading happened than usual, and whether that matters is an empirical question your own scan can answer.
Scanning for them, which is the honest version
Because the definition is two comparisons, you can write it in a few lines. For every three consecutive bars, check whether the first high is below the third low or the first low above the third high, and record the range between.
Add the size filter in the same pass. Express the minimum as a fraction of the instrument’s median bar range rather than as a fixed price, so the same rule works across instruments.
Then count what happened. How many gaps formed, how many were revisited, how quickly, and whether price reacted on arrival or traded straight through.
That exercise takes an afternoon and settles the question for your instrument. It is available because the pattern is mechanical, and it is the reason this concept deserves more confidence than the ones in the same framework that depend on judgement to identify at all.
The original data
Of the 24,971 unique videos in research/search-study-corpus.jsonl, 150 mention fair value gaps in
the title, at a median of 28,170 views across 108 channels, and 46% of those titles are
instruction-shaped. Order blocks appear in 391 at 2,786 and liquidity sweeps in 69 at 17,537. The
counts come from site/corpus_count.py.
150 videos at 28,170 — the largest audience per video of any pattern in this framework, and ten times that of order blocks despite a third of the coverage. The mechanically definable pattern is the one that reaches people, which is not a coincidence.
The answer to the question on that chart is that filling is the ordinary outcome. The pattern identifies a zone, not a reversal — and expecting a reaction from every fill is expecting something the definition never claimed.
When it fails
The failure is treating every gap as a level, and a scan will find more of them than any chart can hold. On a low timeframe in an active market, gaps appear constantly. Marked without a size filter and kept after they fill, they cover the chart within a week, at which point price is always inside one of them and the pattern has stopped distinguishing anything. Each zone was correctly identified; the set of them says nothing.
The second failure is no minimum size. A one-tick gap is a drawing artefact.
A third is widening a zone. It stops being able to fail.
A fourth is entering on arrival. Reaching a zone is not reacting to one.
A fifth is keeping filled gaps. The chart fills with spent zones.
And a sixth is using it on an illiquid instrument. Gaps there mean nobody was trading.
Related
Fair value gap covers the pattern in full. Imbalance is what the gap is claimed to represent. And gap fill is the related idea for overnight gaps, which is a different thing.
This is the one pattern in the framework I can write as code, which is why I trust it more than the others. Three candles, two comparisons, a minimum size. Whether the gaps mean anything is a separate question — but at least the finding of them is not a matter of taste.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.