ICT Fair Value Gap (FVG)
Master the ICT Fair Value Gap — a 3-candle price imbalance that acts as a magnet for price. Learn consequent encroachment, IFVG, BISI/SIBI, and how to trade FVGs like an institution.
What is a Fair Value Gap?
A Fair Value Gap (FVG) is a 3-candle price imbalance where the wicks of candle 1 and candle 3 do NOT overlap, leaving a gap created by candle 2's body. This gap represents an area where price was delivered too aggressively in one direction — an inefficiency the algorithm will likely revisit.
"A Fair Value Gap is the range between the high of candle 1 and the low of candle 3 (bullish) or the low of candle 1 and the high of candle 3 (bearish). It represents an imbalance in price delivery." — ICT
Bullish vs Bearish FVG
Bullish FVG (BISI — Buy-Side Imbalance, Sell-Side Inefficiency)
- Candle 1: Any candle
- Candle 2: Strong bullish displacement candle
- Candle 3: Any candle
- Gap = High of Candle 1 to Low of Candle 3
- Price returns DOWN to fill this gap (buy entry)
Bearish FVG (SIBI — Sell-Side Imbalance, Buy-Side Inefficiency)
- Candle 1: Any candle
- Candle 2: Strong bearish displacement candle
- Candle 3: Any candle
- Gap = Low of Candle 1 to High of Candle 3
- Price returns UP to fill this gap (sell entry)
Consequent Encroachment (CE)
The midpoint (50%) of any FVG is called Consequent Encroachment. ICT teaches that:
- CE is the optimal entry point within an FVG
- If price trades through CE, the FVG is considered violated
- A respected CE = strong institutional interest
- Use CE as your precision entry rather than the full FVG range
How to Calculate CE
Bullish FVG CE = (High of Candle 1 + Low of Candle 3) / 2
Bearish FVG CE = (Low of Candle 1 + High of Candle 3) / 2
Types of FVGs in ICT
1. Standard FVG
Regular 3-candle imbalance — most common, used for entries
2. Implied FVG (IFVG)
When wicks DO slightly overlap but the bodies don't — still treated as an FVG because the body range was inefficient
3. Inversion FVG
A previously bearish FVG that gets fully filled and then acts as support (or vice versa). The FVG "inverts" its role:
- Bearish FVG filled → becomes bullish support
- Bullish FVG filled → becomes bearish resistance
4. Volume Imbalance (VI)
A gap between the close of one candle and the open of the next — different from FVG but related concept
5. Opening Range Gap
Gap between previous day's close and current day's open — institutional gap
FVG Trading Rules
Entry Rules
- HTF Direction — Only trade FVGs that align with Daily/4H bias
- Premium/Discount — Bullish FVGs in discount zones, bearish FVGs in premium zones
- Kill Zone Timing — FVGs formed during Kill Zones are highest probability
- Displacement — The candle creating the FVG should show strong momentum
- CE Entry — Enter at the 50% (CE) of the FVG for optimal risk:reward
Invalidation Rules
- FVG is invalid if price closes through it entirely (full body close beyond)
- FVG is weakened if price trades through CE without respecting it
- FVGs on higher timeframes override lower timeframe FVGs
- Old FVGs (more than 40 candles back) lose significance
Real Trading Examples
Example 1: EUR/USD — Bullish FVG Entry
- Date Context: London session
- HTF Bias: Daily bullish — price in discount, targeting BSL at 1.0950
- Setup: 15M shows displacement up from 1.0880, creating bullish FVG (1.0885 - 1.0895)
- CE Level: 1.0890
- Entry: Limit buy at 1.0890 (CE)
- Stop Loss: Below FVG low at 1.0882 (8 pips)
- Target: BSL at 1.0950 (60 pips)
- R:R: 1:7.5
- Time (BD): Setup formed at 2:30 PM BD (London Kill Zone)
Example 2: Gold (XAU/USD) — Bearish FVG
- HTF Bias: 4H bearish — price in premium after rally to 2,045
- Setup: 5M NY AM session shows bearish FVG at 2,042-2,038 after MSS
- CE Level: 2,040
- Entry: Limit sell at 2,040
- Stop Loss: Above FVG high at 2,043 (30 pips)
- Target: SSL at 2,015 (250 pips)
- R:R: 1:8.3
- Time (BD): 8:00 PM BD (NY AM Kill Zone)
Example 3: NAS100 — Inversion FVG
- Setup: Previous bearish FVG at 17,850-17,820 gets fully filled
- Price returns to this same zone and it now acts as SUPPORT
- Entry: Buy at the top of the old bearish FVG (17,850)
- Concept: The algorithm rebalanced the inefficiency; now the level inverts
Multi-Timeframe FVG Analysis
| Timeframe | FVG Role | Usage |
|---|---|---|
| Monthly/Weekly | Major imbalances — price will travel to fill these | Directional bias, swing targets |
| Daily | Key levels for the week | Intraday bias, area of interest |
| 4H | Refined entry zones | Swing trade entries |
| 15M/5M | Precision entries | Scalp/day trade entries |
| 1M | Sniper entries | Exact entry at CE |
Rule: HTF FVGs > LTF FVGs
A 15M FVG inside a Daily FVG = very high probability. A 15M FVG opposing the Daily FVG = low probability.
Common Mistakes
❌ Trading every FVG — Only trade FVGs aligned with HTF bias and in proper PD zone
❌ Ignoring CE — Entering at the edge of FVG gives poor R:R. Use CE for precision
❌ No displacement — Weak, small-bodied FVGs are not institutional. Look for strong candle 2
❌ Trading old FVGs — FVGs older than 20-40 candles lose relevance
❌ Forgetting time — FVGs created outside Kill Zones are lower probability
Summary
| Aspect | Details |
|---|---|
| Definition | 3-candle imbalance with no wick overlap between C1 and C3 |
| Types | Standard, Implied, Inversion, Volume Imbalance |
| Key Level | Consequent Encroachment (50% of FVG) |
| Best Context | In discount for buys, in premium for sells |
| Entry | Limit order at CE after displacement |
| Invalidation | Full body close through the FVG |
Related Topics
- PD Arrays — Complete PD Array matrix
- OTE — Optimal Trade Entry using FVGs
- Liquidity — Why price targets liquidity after filling FVGs
- Daily Bias — Determining directional bias
- ICT Kill Zones — When to trade FVG setups