Fair Value Gap and Inverse FVG (IFVG) Explained

Fair value gaps are the building block of most ICT and smart money entries. Once you can see them, they're everywhere, and that's the problem: a chart full of gaps doesn't tell you which one to trade. This guide covers how to mark them precisely, what makes a gap worth attention, how inverse FVGs work, and how to use your journal to find out which of your FVG entries actually make money.

What a fair value gap is

A fair value gap (FVG) is a three-candle imbalance. The middle candle moves so quickly that the first and third candles don't overlap. LuxAlgo's concept library describes it as a span where price skipped through levels "without two-sided trading activity".

Bullish FVG

The third candle's low is above the first candle's high. The gap is the space between them.

Example on a 1-minute NQ chart:

• Candle 1 high: 24,100.00
• Candle 2: a strong bullish candle
• Candle 3 low: 24,112.50
• Bullish FVG: 24,100.00 to 24,112.50 (12.5 points)

ICT also calls this a BISI: buyside imbalance, sellside inefficiency.

Bearish FVG

The third candle's high is below the first candle's low.

• Candle 1 low: 24,150.00
• Candle 3 high: 24,138.00
• Bearish FVG: 24,138.00 to 24,150.00 (12 points)

ICT calls this a SIBI: sellside imbalance, buyside inefficiency.

Consequent encroachment

The midpoint of the gap is called consequent encroachment (CE). For the bullish example above, CE is (24,100.00 + 24,112.50) ÷ 2 = 24,106.25. Many traders use CE as an entry level, or treat a touch of it as "filled enough".

Why traders care about gaps

The idea behind FVGs is that a fast, one-sided move leaves an inefficiency that price may later revisit to trade both ways. In practice, a gap gives you three useful things:

1. A footprint of displacement. A clean gap shows that one side was in control for a moment.
2. A defined zone. The gap's edges and midpoint are clear prices for a limit order.
3. A logical stop. If price trades through the whole gap and beyond the swing that created it, the idea is wrong.

None of these says the gap will be revisited, or that price will turn there. That part comes from the rest of your model.

What makes a gap worth attention

Not every gap is equal. These filters remove most of the noise:

A gap that ticks five or six of these boxes is a candidate. A gap that ticks one or two is just part of the chart.

FVG, order block or liquidity void?

These three terms get mixed up, so here's how they differ in practice:

They often appear together. A sweep, then an order block, then a displacement that leaves a gap is the classic sequence. If your model uses both, decide which one you enter on and stick to it, so your journal can compare like with like.

Using two timeframes

A practical way to cut noise is to use a higher timeframe for context and a lower one for entry.

1. On the 15-minute chart, mark untouched FVGs near your session's key levels. These are areas of interest, not entries.
2. When price reaches one of those zones during your trading window, drop to the 1-minute or 3-minute chart.
3. Wait for a sweep and a lower-timeframe gap in the direction you expect, and enter on that smaller gap.

The higher-timeframe gap tells you where to pay attention. The lower-timeframe gap gives you a tight, defined stop. Record both timeframes in your journal, because the combination you use is part of the strategy.

Inverse fair value gaps (IFVG)

An inverse FVG is a fair value gap that fails and flips. When a candle closes through the far side of a gap, the zone's role is treated as reversed: broken resistance becomes support, and broken support becomes resistance.

How an IFVG forms

Take the bearish gap from above, 24,138.00 to 24,150.00.

1. Price returns to the gap from below, as expected for a bearish FVG, but instead of turning down it pushes through.
2. A 5-minute candle closes at 24,158.00, above the gap's top edge of 24,150.00.
3. The bearish FVG has failed. Traders now mark the same zone, 24,138.00 to 24,150.00, as a bullish IFVG.
4. If price comes back down into the zone, they look for longs, expecting it to act as support.

A sample IFVG plan

Hypothetical numbers, for the arithmetic only:

With $250 of risk, one MNQ risks 16 × $2 = $32, so 7 MNQ ($224). One NQ would risk $320, over budget.

Defining "closes through"

Be strict here, because this rule decides everything. Common definitions:

• Body close beyond the far edge of the gap (most common).
• Body close beyond the far edge on the entry timeframe, not on a lower one.
• Some traders also require displacement: the closing candle should be large, not a slow drift.

Pick one definition, write it in your checklist, and don't change it trade by trade.

Common FVG mistakes

• Marking gaps on every timeframe at once. You end up with a gap at every price. Choose one context timeframe and one entry timeframe.
• Entering the first touch of any gap. Without a sweep, bias and target, a gap is just a level.
• Stops inside the gap. A stop at the gap's far edge is often hit by normal noise. Put it beyond the swing that created the gap.
• Treating a filled gap as a new one. Once price has traded through a gap fully, it's either gone or an IFVG candidate. It isn't the same setup any more.
• Moving the definition after a loss. If you change what counts as a gap or an inversion after each losing trade, your sample is meaningless.

How to journal FVG and IFVG trades

FVG traders face a real question: does entering at the edge, at CE, or after an inversion produce better results for you? Your journal can answer it, but only if you record a few extra fields:

• Zone type: FVG or IFVG.
• Gap timeframe: 1m, 5m, 15m.
• Entry location: near edge, CE, far edge.
• Context: after a sweep, yes or no.
• Result in R and whether the target or the stop was hit first.

After 50 to 100 trades, compare expectancy in R for each group. A typical finding might be that CE entries win less often but pay more per win, or that IFVG trades only work when they form inside your window. Whatever the answer is for you, it should come from your trades, not from a video.

TJ makes this split simple. Add zone type and entry location as checks or tags in your strategy, grade each setup in Rate It! before you enter, and Review shows R by tag and by grade. The community strategy library includes iFVG and other ICT model templates you can copy and adjust. To see how it fits together, open the demo.

Putting it into a model

A gap needs a home. Two common ones:

• The Silver Bullet: a sweep and an FVG inside a one-hour window. See ICT Silver Bullet strategy.
• Killzone reversals: a sweep of the Asian or London range during the London open or New York AM, then an FVG or IFVG entry. See ICT killzones explained.

In both, the gap only gives you the entry. The reason for the trade comes from the sweep, the timing and the target.

Quick reference

• Bullish FVG: candle 3 low above candle 1 high.
• Bearish FVG: candle 3 high below candle 1 low.
• CE: the gap's midpoint.
• IFVG: a gap that a candle closes through; the zone flips role.
• Stop: beyond the swing that created the gap, not inside it.

Not financial advice. Fair value gaps describe past price action; they don't predict what price will do next, and trading involves risk of loss.