The idea in one breath: A fair value gap is a range that traded in one direction only — the first candle's wick and the third candle's wick never overlap. It marks somewhere price moved too fast for two-sided business, and price frequently returns to do that business.
Three candles, one rule
Take any three consecutive candles. If the high of the first sits below the low of the third — or the low of the first above the high of the third — the space between them never traded in both directions. That space is the gap.
The middle candle has to show real displacement. Without it you are looking at ordinary noise, which produces non-overlapping wicks constantly on low timeframes and means nothing at all.
The more useful application
Most teaching treats gaps as entries. They work at least as well as targets: an unfilled gap above price is somewhere price has already demonstrated it can travel quickly. Using them as objectives is less crowded and does not require the gap to hold as support — which it often will not.
A one-sided displacement left an imbalance on this chart. Mark the top edge of the fair value gap.
What the Scoreboard Says About SMC
You have now learned the framework. This lesson asks the question the framework's teachers rarely do: does it work, and how would we know?
Continue the track