Fair Value Gaps (FVG), Imbalance and Breaker Blocks in Smart Money Concepts
Lesson 5 of 10 · Intermediate
What is a Fair Value Gap (FVG)?
A Fair Value Gap, or FVG, is a three-candle pattern that marks a fast, one-sided move. In a bullish FVG, the middle candle is a large bullish candle, and a gap remains between the high of the first candle and the low of the third that no wick has covered. In a bearish FVG, the gap lies between the low of the first candle and the high of the third. ICT material sometimes uses two terms for these cases: BISI (buy-side imbalance, sell-side inefficiency) and SIBI (sell-side imbalance, buy-side inefficiency).
This zone is also called an imbalance or inefficiency, because price traded in only one direction through that range and the other side had little chance to participate. The SMC idea is that the market tends to return to these areas later to "rebalance" them, meaning fill them fully or partly, and sometimes reacts there.
An FVG differs from a classic gap. A classic gap is the distance between one candle's close and the next candle's open; an FVG is defined between the wicks of the first and third candles, and in a continuous market like gold it forms many times a day.
FVG quality and the CE level
Not all FVGs are equal. Common criteria for judging quality:
- Formed with displacement: an FVG created in a strong move that breaks structure matters more than one created in ordinary fluctuation.
- Alignment with structure: in an uptrend, a bullish FVG carries more weight.
- Relative size: a very small FVG relative to that timeframe's normal volatility is often noise; a very large FVG may never be filled completely.
- Location: a bullish FVG in discount and near a valid OB is the combination this style prefers.
The midpoint of an FVG is called consequent encroachment (CE) in ICT material. Some traders judge an FVG's strength by price behaviour at this level: if price in a bullish FVG reaches the CE but no body closes beneath it, the FVG is considered "respected". If bodies pass through the entire FVG, its supportive function is gone.
Inverse FVG is another concept: when a bullish FVG is fully rejected downward by a strong body, some traders treat that same zone as resistance from then on. The idea resembles support turning into resistance in classical analysis.
Breaker blocks: an order block that failed
A breaker block is an order block that has been invalidated and may now play the opposite role. The formation sequence of a bullish breaker goes like this:
- Price makes a low and then a high.
- Price breaks the earlier low and takes the liquidity beneath it (a sweep to a lower low); that drop started from a bearish order block, the last up candle before the decline.
- Price then reverses with a strong bullish move and breaks the high of the first stage.
- The bearish order block that has now been violated becomes a bullish breaker. In this style, a return of price to it is a potential support zone.
A bearish breaker is the mirror image of this sequence. The difference between a breaker and the mitigation block from the previous lesson is the sweep: in a breaker, a previous high or low was taken before the structure break; in a mitigation block there is no such sweep.
A hypothetical gold example
The numbers are for teaching only. CPI data is released at 08:30 New York time. On the 5-minute XAUUSD chart, a low at 4,052 and a high at 4,060 formed before the news. When the data hits, price first drops to 4,049, sweeping the 4,052 low, and then three bullish candles lift price to 4,074 and break the 4,060 high. Between the high of the first candle of that move (4,061) and the low of the third (4,066), a five-dollar bullish FVG remains, with its CE at 4,063.5.
At the same time, the last up candle before the drop to 4,049, which sat roughly between 4,055 and 4,059, has become a bullish breaker once 4,060 was broken. We now have two overlapping areas: the FVG from 4,061 to 4,066 and the breaker from 4,055 to 4,059. An SMC trader marks these as a zone of interest for a possible return and, for invalidation, considers a body close below the whole zone.
The reality after big news is that spreads widen and moves can continue without respecting any zone. Many traders wait a few minutes after the release for the market to return to normal.
When FVGs and breakers do not work
On the lower timeframes in gold, almost every move of a few dollars leaves an FVG. If you mark them all, every reversal can be explained by some FVG, and an after-the-fact explanation has no predictive value. Also, in very strong trends, small FVGs remain unfilled one after another; someone waiting for them to fill misses the entire move.
The breaker also depends on correctly identifying the sweep. If what you took for a sweep was actually a genuine break, the whole logic of the breaker collapses. The sensible route is to keep statistics: record in your journal what percentage of your FVGs in a specific condition (for example, only 15-minute FVGs after a sweep during the London kill zone) produced a reaction. That number changes from market to market and period to period.
Common mistakes
- Marking every lower-timeframe FVG and losing prioritisation
- Expecting every FVG to fill in strong trends and missing the move
- Confusing a classic opening gap with a three-candle FVG
- Building a breaker block without a genuine sweep and mixing it up with a mitigation block
- Entering immediately on FVGs created at a news release when spreads are wide
What does volume say here?
An FVG is a price and time pattern on the candle chart, but in volume data it takes on a more tangible meaning. A move that creates an FVG usually appears in the footprint as stacked imbalances: price levels at which aggressive buying was several times the selling. On the Volume Profile, the same span is often an LVN, a low volume node, meaning price traded little there. These two observations turn "inefficiency" from a claim into visible data.
But LVN behaviour is double-edged, and fairness requires saying so: on a return, price may pass quickly through the low volume area on its way to the next HVN, or, if the participants who started the move defend it, react right there. What separates the two is order flow at the moment of return: absorption of selling and a delta turn favour a reaction, while aggressive selling with no resistance favours a pass-through. For a breaker block, also check whether the original sweep showed absorption and a jump in volume; a breaker born from a genuine sweep on significant volume has stronger backing.
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Frequently asked questions
How is an FVG drawn in Smart Money Concepts?
In a bullish FVG, you mark the gap between the high of the first candle and the low of the third in a three-candle move, provided no wick has covered it. In a bearish FVG, it is the gap between the low of the first candle and the high of the third.
Do all FVGs get filled?
No. Many are filled, but in strong trends a large number stay unfilled or fill only to the CE level. The exact proportion depends on the market, timeframe and period, and you should test it yourself.
What is the difference between a breaker block and an order block?
An order block is a zone still assumed to be valid. A breaker block is an order block that was invalidated after a sweep and a break of structure, and may now play the opposite role: support instead of resistance, or the reverse.
Education only, not a recommendation to buy or sell; we never give signals. Price examples are illustrative. Test any method on a demo account first, with strict risk management.