Some traders have an impressive ability to take a fairly ordinary market behavior and give it a compelling name. “Fair value gap” was one of those for me. The first time I saw it, my reaction was pretty simple: what the hell is that? What gap? And more importantly: why is it fair?
So I did what most people do. I looked into it.
And I have to admit – at first, it actually sounded pretty reasonable.
What Do They Mean by Fair Value Gaps?
A fair value gap is usually described as a small “gap” in price where the market moved so quickly that not much trading happened in between.
The textbook version is a three-candle pattern:
- a strong move in one direction
- where the first and third candles don’t fully overlap
- leaving a small range in between
The idea is that this area represents an imbalance – one side of the market dominated, and the other side didn’t really get a chance to participate.
From there, the explanation expands.
You’ll often hear that:
- the market wants to “rebalance”
- price will come back to these gaps
- and that these areas act as support or resistance
That’s the core idea. Then once you go a bit deeper, the terminology starts to multiply.
You’ll see things like:
- BISI (buy-side imbalance)
- SIBI (sell-side imbalance)
- inversion gaps
- volume imbalances
- breakaway gaps
At first glance, it feels like a whole different framework. But if you slow it down, most of these are just variations of the same idea.
If price moved up quickly, it means that buyers were stronger. If price moved down quickly, it means that sellers were stronger. That’s all BISI and SIBI are really saying. “Inversion” just means an area didn’t hold and flipped behavior – same idea as support becoming resistance. “Volume imbalance” is just pointing out that trading wasn’t even between two prices. Even breakaway gaps – something that existed long before this terminology – describe the same thing: price leaving an area quickly with strong momentum.
Different names, same underlying behavior.
Old Ideas, New Labels
Once you strip the terminology away, everything comes back to one simple observation:
“sometimes the market moves quickly because one side overwhelms the other“
That’s it.
And this is where things start to make more sense, because this idea already exists in much older and more established ways of thinking about markets. In Auction Market Theory, price is constantly moving to find levels where buyers and sellers agree. When they do, price moves slowly. When they don’t, price moves quickly. That’s what an imbalance is. Not a gap. Not a special signal. Just a moment where the market wasn’t balanced.
Up to this point, there’s nothing controversial.
Price moves fast sometimes.
Those moves reflect imbalance.
Those areas can stand out later.
All of that makes sense.
And honestly, if the concept stopped here, I wouldn’t have much of an issue with it. However…
Lost in Translation
The problem is what gets added on top, because somewhere along the way, the explanation shifts.
“Price moved quickly here” becomes “price will come back here”, and eventually “price needs to come back here”.
That’s where I start to question it.
Not because price never comes back – we see that it clearly does sometimes – but because the reasoning quietly changes from observation to expectation. And those are not the same thing.
If you go back to the underlying theory, whether it’s Auction Market Theory or basic supply and demand, the market isn’t trying to “fix” past price action. It’s just moving. Sometimes it rotates back into prior areas because new participants step in. Sometimes it keeps going because momentum and positioning don’t support a return. There’s no requirement for price to revisit a level just because it moved quickly through it before. That part, the idea that gaps must be filled, isn’t really coming from theory. It’s an interpretation layered on top.
On charts after the fact, fair value gaps look incredibly clean. Price taps them, reacts, and everything lines up perfectly. But in real time, it’s messier.
Sometimes price respects them.
Sometimes it cuts straight through them.
Sometimes it reacts somewhere close enough to feel related, but not convincingly so.
It didn’t feel like a rule. It felt like something that sometimes matters, depending on everything else going on.
And funnily, once I stopped expecting anything from them, they became easier to use. Instead of treating them like targets, I started treating them like context. A fair value gap just tells you that price moved quickly here – in other words, something was one-sided. Something had urgency. It’s neither a prediction nor a signal – it’s something useful to know.
The Burning Question: Do Fair Value Gaps Work?
I think the honest answer is: yes, but not in the way they’re usually presented.
They reflect something real:
- imbalance
- aggressive participation
- fast movement
But as I said above, they don’t guarantee anything.
They don’t need to be filled.
They don’t pull price back.
They don’t carry some built-in obligation.
At that point, you’re adding assumptions.
Final Thought
The longer I look at fair value gaps, the less interesting the name becomes. The useful part isn’t the “gap.” It’s not the “fair.”
It’s the fact that markets don’t move evenly.
Sometimes they move slowly. Sometimes they move quickly because one side takes control. That idea is old. It’s well understood. And it shows up in every serious way of thinking about markets.
What’s newer is how much meaning we’ve started attaching to it. And that’s probably the part worth being careful with.