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Middle School: Technical Strategy & SMCTrading Strategies7 min readDifficulty: Intermediate

Fair Value Gaps (FVG) & Order Blocks: The Complete Entry Guide

Master the anatomy of 3-candle Fair Value Gaps (FVG) and High-Probability Order Blocks. Learn how to filter out low-probability fakeouts and pinpoint precise entries.

Key Lesson Takeaways
  • A Fair Value Gap is a 3-candle price imbalance where Candle 1 and Candle 3 wicks do not overlap.
  • High-probability FVGs occur alongside a liquidity sweep and a market structure break.
  • An Order Block is the last opposing candle before an aggressive impulse move.
  • Discount vs Premium pricing: Only buy in Discount (<50% range) and sell in Premium (>50% range).

What Is a Fair Value Gap (FVG)?

A Fair Value Gap (also known as a price imbalance or single print) occurs when aggressive one-sided market buying or selling creates an inefficient delivery of price.

Anatomy of a Bullish FVG: 1. Candle 1: Normal bullish or bearish candle. 2. Candle 2: Large, aggressive bullish candle with high volume. 3. Candle 3: Follow-through candle. 4. The Gap: The space between the high of Candle 1 and the low of Candle 3. There is zero traded overlap between them!

       Candle 3 [Low] ──┬──
                        │  ← UNTRADED GAP (FVG)
       Candle 1 [High] ─┴──

The algorithm will frequently return to this gap to rebalance the imbalance before resuming the dominant trend. This retest is your sniper entry point!

Premium vs Discount Pricing

To avoid buying at the top or selling at the bottom, institutional algorithms use the 50% equilibrium rule:

100% ───────────── High of Dealing Range
     PREMIUM      (Only look for SELLS here)
50%  ───────────── EQUILIBRIUM
     DISCOUNT     (Only look for BUYS here)
0%   ───────────── Low of Dealing Range
  • If you want to buy, wait for price to pull back below the 50% Fibonacci retracement into the Discount zone.
  • If you want to sell, wait for price to rally above 50% into the Premium zone.

Buying inside a Premium FVG is a classic rookie mistake that leads to stop-outs.

Prop Trader Pro Tips
Combine 15-minute FVGs with higher timeframe (4-hour) trend direction for win rates exceeding 55% at 1:2.5 R:R.
If an FVG gets completely filled and closes through with candle bodies, the setup is invalidated; cancel pending limit orders.
Hidden Gotchas & Account Traps
×Trading every single FVG on 1-minute charts. Micro-timeframe gaps are mostly noise unless anchored to a 15m/1h liquidity raid.
×Forgetting that high-impact news releases can blow through order blocks without respect.

Lesson Knowledge Check

Test Your Retention

How is a bullish Fair Value Gap (FVG) defined across a 3-candle sequence?

Where is the highest probability stop-loss placement when entering on a bullish Order Block (OB)?

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