smc concept fvg calculated from last 2 bar high not last bar why

 In Smart Money Concepts (SMC), a Fair Value Gap (FVG) is a 3-candle pattern. It is calculated using the high of the candle two bars back (Candle 1) rather than the previous candle (Candle 2) because an FVG requires a visible void in price that the current candle (Candle 3) has not yet traded into. [1, 2]

Why Two Candles Back?

• Candle 1 (The Setup): This is the bar before the impulsive move.
• Candle 2 (The Gap/Impulse): This is the large, impulsive candle that creates the imbalance.
• Candle 3 (The Confirmation): This is the current bar that confirms the move. [1, 2]

The Mathematical Rules

To plot an FVG, you need to measure the gap between the extremes of Candle 1 and Candle 3: [1]

• Bullish FVG: The lowest point of Candle 3 must be higher than the highest point (wick) of Candle 1. The untraded void sits between these two exact prices.
• Bearish FVG: The highest point of Candle 3 must be lower than the lowest point (wick) of Candle 1. [1, 2, 3, 4]

If it were calculated from the last bar (Candle 2), you would just be measuring a standard candle's range. By evaluating the gap from Candle 1 to Candle 3, you confirm that the market experienced "displacement"—an institutional footprint—where price moved too fast to fill orders, creating a void that usually acts as a magnetic zone for future price action. [1]

If you want, I can:

• Detail how to find the 50% equilibrium level (midline) for precise FVG entries.
• Show you the difference between valid and mitigated FVGs.
• Explain how an FVG flips into an Inverse FVG (IFVG) when broken.

Let me know how you'd like to proceed with your SMC strategy.