Imperial Research Fair value gap
Fair value gap: which one is the strongest?
A fair value gap is a three-candle pattern where the middle candle moves so fast that the wicks of the candles on either side do not overlap. The gap marks where one side was in a hurry. Not every gap is worth trading.
Checked 3 November 2026
Show the solution
Solution: B. B was created by a displacement candle that broke the previous high, so it marks a price buyers were in a hurry to leave. When price came back into it, buyers stepped in again and the gap held. A is a sliver inside choppy price that no one needed. C was traded straight through and closed below, so it no longer works as support.
Cancelled if a candle closes below the bottom of the gap.
Illustrative diagram, not market data.
How to spot one
Look at three candles in a row. In a bullish gap, the first candle's high and the third candle's low leave space between them; the middle candle is long and closes near its high. In a bearish gap, the first candle's low and the third candle's high leave the space. Mark the space as a zone, from the first wick to the third.
Grading a gap
| Check | Strong gap | Weak gap |
|---|---|---|
| What made it | Displacement that broke structure | A fast candle inside a range |
| What came before | A sweep of liquidity | Nothing in particular |
| Size | Clear on your timeframe | A sliver |
| Since then | Untouched or tapped and held | Traded through and closed beyond |
| Higher timeframe | Points the same way | Against the trend |
Entering at a gap
Common entries are at the near edge of the gap (more fills, wider stop) or at its middle (better price, more missed trades). Put the stop beyond the far edge or beyond the order block behind it. Cancel the idea if a candle closes through the gap: at that point it may become an inverse gap working against you.
Questions
What is a fair value gap?
A three-candle pattern. In a bullish one, the low of the third candle sits above the high of the first, leaving a gap the middle candle travelled through without trading on both sides. The bearish version is the mirror image.
Do fair value gaps always fill?
No. Many get revisited, but price also often runs away from a gap and never comes back, and a filled gap can fail. Studies quoted online report high fill rates on Nasdaq gaps, but none we have seen is verified, so test your own rules.
What is an inverse fair value gap?
A gap that price closes through. A bullish gap that fails becomes resistance from below, and traders use that flip as a confirmation for a short. It is the third confirmation method in the entries study.
Fair value gap or order block?
They often sit together: the order block is the last opposite candle before the move, the gap is the hole the move left. Many traders enter at the gap and put the stop beyond the order block.