Detecting Fair Value Gaps with a Three-Candle Price Pattern

Summary

This document describes an indicator for Smart Money Concepts traders that identifies Fair Value Gaps, also called imbalances or inefficiencies. It defines a gap as a three-candle pattern in which the wick ranges of the first and third candles do not overlap, leaving an untraded area around the middle candle. The indicator marks these zones on a chart as they form.

The suggested interpretation is that price may later return to a gap, where the zone could serve as a target or a possible reversal area as the imbalance is mitigated. The author says the indicator uses closed candles, so marked gaps do not shift or disappear after being drawn. It can be applied on shorter execution charts or higher timeframes for broader structural reference. No backtest, performance evidence, rules for confirming a trade, or risk controls are provided, so the pattern’s predictive value is not established here.

Key ideas

• A Fair Value Gap is identified from a three-candle sequence whose first and third wicks do not overlap.
• The indicator draws these price zones after candles close, according to the author’s non-repainting description.
• The document frames gaps as potential price targets or reversal areas when price revisits them.
• Shorter and higher chart timeframes are suggested for different uses, from entries to structural context.
• The document supplies no testing evidence or complete trade management rules.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.