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On SOL’s 1h chart, one candle opens at 185.10 and closes at 188.90, straight through the 186.00 high. The candle before it topped at 185.40, and the one after never traded below 187.20. Every trade between those two wicks happened during that one fast candle, and that band is a fair value gap. All prices here are invented.
How to mark a fair value gap
A fair value gap (FVG), also called an imbalance, is a three-candle pattern in which the wicks of the first and third candles don’t overlap:
- Bullish FVG: from candle 1’s high up to candle 3’s low, left by a strong up candle.
- Bearish FVG: from candle 1’s low down to candle 3’s high, left by a strong down candle.
If candle 3’s low touches or dips under candle 1’s high, there is no gap, however large candle 2 was. Some traders draw the box from the bodies, which gives more gaps and wider ones; we use the wicks, since the wicks show the full range that actually traded. Extend the box to the right until a candle closes beyond its far edge, candle 1’s high on a bullish gap and candle 1’s low on a bearish one. Followers of ICT (the Inner Circle Trader) call its midpoint consequent encroachment, and that is where we put the entry in the example.
Which gaps are worth trading
We trade a gap only when the leg that left it was a break of structure (BOS), a candle close beyond the last confirmed swing in the trend’s direction. A swing is confirmed once five candles have printed on each side of it, the setting that Finora, an AI trading assistant on Telegram, uses in its chart table. A bullish gap inside a 1h downtrend is usually a pause in the selling, and price often closes straight through it.
We take a gap on its first visit only, because the orders that defended it were filled then.
When a gap fills, and when it fails
A gap is partly filled when price trades into it and fully filled when it reaches the far edge, and neither counts as a failure. A wick through the whole gap that closes back inside fills the stops resting under it, as a liquidity sweep does, and the gap still holds. It fails on a candle close beyond the far edge, on the timeframe you marked it on.
In a strong trend price may not come back at all, and once a newer leg breaks the next high and leaves its own gap, we work with that one.
A worked example on the 1h
The SOL 1h is in an uptrend. The last confirmed swing high was 186.00, and the pullback from it made a confirmed higher low at 181.20. Candle 2’s close above 186.00 is a bullish BOS, so 181.20, the confirmed low that launched the breaking leg, is now the protected low, and the trend stays up until a 1h candle closes below it. The gap runs from 185.40 to 187.20, with its midpoint at 186.30 and the broken high inside it. Price runs on to a higher high at 191.50 and turns down.
- Candle 1: its 185.40 high is the gap’s bottom
- Candle 2: closes at 188.90, above the 186.00 high
- Candle 3: its 187.20 low is the gap’s top
Recent 1h wicks ran 0.40 to 0.60 past their levels, so the stop goes 0.80 past the bottom of the gap:
- Entry: a limit at 186.30, the midpoint.
- Invalidation: a 1h close below 185.40, the bottom of the gap.
- Stop: 184.60. That 1.70 from entry is 1R, and it sets the size (see the invalidation level guide).
- Target: 191.30, a little under the 191.50 high, where short sellers keep their buy stops. 5.00 away, about 2.9R.
The trade exits on the invalidation close or at the stop, whichever comes first. A fill at the top edge, 187.20, would carry 2.60 of risk to the same stop for about 1.6R, so we wait at the midpoint and miss the pullbacks that only tag the top. Tying the invalidation to 181.20 instead would put the stop at 180.40, with 5.90 of risk for 5.00 of reward, about 0.8R. The trade rests on the gap holding, so it can close at a loss while the 1h trend still reads up.
On the pullback, a candle wicks to 185.90 and closes at 186.80. The limit fills, and the wick also runs the stops that breakout buyers kept under 186.00. Nothing has closed below 185.40, so the trade stays on toward 191.30. If it gets there, that is 5.00, about 2.9R.
In the failing version, the next hour drops to 184.80 and closes at 185.00. That close is the invalidation: we are out at about 185.00, 1.30 down or 0.8R, before the stop is reached.
Failed gaps and the inverse FVG
Once a candle closes beyond the far edge, count the closes:
- One, then a close straight back inside: a deviation, or failed break. A long on the return is a new trade at smaller size, with its stop beyond the failed break’s lowest low (see sweep vs breakout).
- Two or more: acceptance. A retest from the other side that gets turned away confirms it.
In the failing version the next candle closes at 184.70, and a later bounce wicks to 186.40 and closes at 185.10: two closes below and a sold retest. The band is now an inverse fair value gap (IFVG), a gap that price closed through and accepted beyond, which then acts from the other side, here as resistance.
We don’t buy a later close back above 185.40. A deviation long relies on sellers trapped at once, while these sellers have held price under the gap for hours, are in profit and have had time to move their stops. We don’t short the inverse gap either, because the 1h trend still reads up. That short needs a change of character (CHoCH), a 1h close below the last confirmed swing low: 181.20, or the low before the bounce once it confirms as a higher low. Then it needs a lower high and a close below the low of the drop that made the CHoCH, the first bearish BOS.
What changes on crypto charts
Crypto trades around the clock, so the gaps stock charts show between one session’s close and the next open almost never print. CME gaps, the jump on CME Bitcoin futures charts between a weekend close and the reopen, are a different thing. A fair value gap forms inside one fast candle, with no pause in trading.
Wicks differ between exchanges and between spot and perpetual futures, so a gap on a Binance perpetual can be a different size on the spot chart, or missing there. Mark it on the chart you trade.
A liquidation cascade on perps can print a 1h gap several times the usual width. With the entry at its midpoint and the stop under the far edge, the risk can outgrow the room to the next obvious high, and then we pass.
What a Finora read shows
A full (Premium) Finora read lists fair value gaps in its Critical Levels section next to supports, resistances and order blocks, and its Trade Ideas may use one as an entry zone. The chart table shows the trend’s flip level, here a 1h close below 181.20, while stop and size stay your decision. Tap Watch levels under a read and Finora messages you when price touches one of its levels, before the candle closes, so check the close yourself.