When a central bank surprises the market, price does not move politely — it displaces. It jumps. Candles become enormous. And in that displacement, gaps appear — not the kind you see on stock charts at market open, but structural gaps hidden inside 3-candle sequences where no real trading occurred. These Fair Value Gaps are the market's unfinished business. Price has a near-magnetic tendency to return and fill them. Traders who map FVGs before they fill are positioning where institutions plan to re-enter.
A Fair Value Gap (FVG) is a 3-candle pattern where the middle candle displaces so aggressively that the wick of candle 1 and the wick of candle 3 do not overlap — leaving a gap of untested price. This gap represents an imbalance where demand and supply were not exchanged at fair value. The market tends to return to these gaps to rebalance.
Identifying a Bullish FVG
1. Candle 1: any candle (note its HIGH)
2. Candle 2: a strong bullish candle with a large body (the displacement)
3. Candle 3: any candle (note its LOW)
4. If Candle 3's LOW is higher than Candle 1's HIGH → the space between them is the bullish FVG
The gap zone = Candle 1 HIGH to Candle 3 LOW. This is your entry zone when price returns.
Identifying a Bearish FVG
Same logic reversed:
1. Note Candle 1's LOW
2. Candle 2: strong bearish displacement
3. Note Candle 3's HIGH
4. If Candle 3's HIGH is lower than Candle 1's LOW → bearish FVG
FVG as entry zones
How to trade bullish FVGs:
- Wait for price to retrace down into the FVG zone
- Look for bullish confirmation (engulfing, pin bar) inside the gap
- Stop loss below the FVG zone · Target the recent high or next liquidity pool
FVG fill probability:
- 70-80% of FVGs get at least partially filled (price returns to the gap)
- FVGs on higher timeframes (4H, Daily) are more reliable than lower timeframes
- FVGs that align with order blocks are the highest-probability entries
Consequent Encroachment
The 50% midpoint of an FVG is called the Consequent Encroachment (CE). Price often reacts at this midpoint rather than filling the entire gap. Smart traders place entries at the CE level for tighter stops and better R:R.
EUR/USD bullish FVG entry:
Candle 1 High: 1.0860 · Candle 2: strong bullish displacement
Candle 3 Low: 1.0880
FVG zone: 1.0860 – 1.0880 · CE: 1.0870
Price rallies to 1.0940, then retraces back to 1.0872 (near CE).
Bullish engulfing forms → Entry: 1.0875
Stop: 1.0855 (below FVG) · Target: 1.0940 (previous high)
Risk: 20 pips · Reward: 65 pips · R:R: 1:3.25
NGX parallel: AIRTEL AFRICA gaps up from ₦1,850 to ₦1,920 on earnings day — candle 1 high ₦1,855, candle 3 low ₦1,905. The FVG is ₦1,855–₦1,905. Two weeks later, price retraces to ₦1,880 (inside the FVG) and bounces to ₦1,960. The gap acted as institutional re-entry — the same mechanics on NGX as on Forex.
Trading every FVG you find. Not all FVGs are equal. A tiny FVG created by a 10-pip candle on the 5-minute chart is noise. Focus on FVGs created by strong displacement (large candle bodies) on 4H or Daily charts — these represent genuine institutional imbalance, not random volatility.
Combine FVGs with premium/discount analysis. A bullish FVG sitting in the discount zone of the current swing is the highest-confluence long entry in SMC. You have: institutional imbalance (FVG) + discounted price + expected rebalancing. Stack the odds.
Fair Value Gaps are structural imbalances left by aggressive institutional displacement — price returns to fill them 70-80% of the time, making them one of the most reliable entry zones in Smart Money trading.
