Fair value gaps, and the claim attached to them

Take three candles in a row. If the middle one moves far enough that the first candle’s range and the third candle’s range do not overlap at all, there is a band of price between them where nothing traded. That band is what traders mean by a fair value gap.

Where the term comes from

The phrase belongs to a particular corner of retail trading education rather than to finance generally. You will not find it in a textbook or in the exchange’s own material, and it has no agreed definition beyond the three-candle construction. "Imbalance" is used for the same thing.

The claim, stated as a claim

The idea is that a band nobody traded in represents unfinished business between buyers and sellers, and that price tends to return to it later and "fill" it. That is a belief held by a part of the trading community. It is not a measured property of markets, there is no peer-reviewed work establishing it, and the gaps that do get filled are far more memorable than the ones that do not.

What is actually observable

• That the band exists: it is arithmetic on three candles, and anyone looking at the same chart gets the same answer.
• That it usually follows news released while the market was closed, or a single large order.
• That a wide gap is a reason to check whether an order would fill where you expect, because no price traded in between.