A Fair Value Gap (FVG) is a three-candle price imbalance left behind when the market moves fast enough that it doesn’t trade every price in between. The wick of the first candle and the wick of the third candle don’t overlap — leaving a visible gap in the middle candle’s range. ICT theory holds that price is statistically drawn back to fill (or partially fill) that gap before continuing, which makes the FVG one of the most reliable entry zones in the entire framework.
An FVG forms during a strong, displaced move — the kind of candle that results from institutional order flow rather than gradual retail buying and selling. Because the imbalance represents a price range that traded through inefficiently, ICT traders treat a retracement back into it as a high-probability entry, since the algorithm is expected to “rebalance” that inefficiency before delivering price further in the original direction.
How to identify a bullish and bearish FVG
A bullish FVG forms across three up-moving candles: the high of candle 1 sits below the low of candle 3, leaving a gap between them that candle 2 (the big displacement candle) skipped over. Price is expected to return down into that gap and hold before continuing higher. A bearish FVG is the mirror image — the low of candle 1 sits above the high of candle 3, and price is expected to retrace up into the gap before continuing lower.
The middle of the three candles is what created the FVG — but the ENTRY zone is the gap itself, not the candle. Draw the box from the high of candle 1 to the low of candle 3 (bullish), or the low of candle 1 to the high of candle 3 (bearish). That box is where you wait for price to return.
The FVG entry model
The standard ICT approach: (1) confirm a liquidity sweep has occurred and a market structure shift has formed, (2) locate the FVG that formed as part of the displacement move that caused the shift, (3) wait for price to retrace back into the FVG — ideally to its 50% level, known as the Consequent Encroachment (CE), and (4) enter with a stop just beyond the FVG’s far edge, targeting the next liquidity pool.
FVG vs Inverse FVG (IFVG)
When an FVG is fully traded through and closes beyond it — meaning price didn’t just fill the gap but broke past it entirely — the gap is considered violated, and it can flip polarity into an Inverse Fair Value Gap. What was resistance (a bearish FVG) can act as support once violated, and vice versa. This is an advanced concept, but it’s the reason ICT traders don’t discard an FVG the moment it’s been fully traded through — it often becomes a new zone of interest in the opposite direction.
| Type | Forms during | Entry direction | Stop placement |
|---|
| Bullish FVG | A strong upward displacement candle | Long, on the retracement down into the gap | Just below the FVG’s lower edge |
| Bearish FVG | A strong downward displacement candle | Short, on the retracement up into the gap | Just above the FVG’s upper edge |
| Inverse FVG (IFVG) | An FVG that gets fully traded through and closes beyond it | Opposite of the original FVG direction | Just beyond the violated gap’s far edge |
Common mistakes
Trading every FVG on sight. Not every imbalance is tradeable — an FVG that forms without a preceding liquidity sweep and market structure shift is just a gap, not a valid ICT setup. Context always comes first.
Using an FVG against the higher-timeframe bias. A bullish FVG appearing inside a clearly bearish daily trend is far more likely to be a retracement continuation zone for sellers than a genuine reversal — always check the higher timeframe direction first.
Setting the stop too close to the CE. The 50% level is an entry trigger, not a stop level — price can dip through the CE and still respect the gap overall. The stop belongs beyond the full edge of the FVG box, not at its midpoint.
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