Fair Value Gap or ICT FVG is a three-candle pattern that creates an empty or unreturned zone between the first candle's high and the third candle's low.
This zone represents an imbalance between buyers and sellers and acts as a support or resistance level.
How is FVG Formed?
FVG forms when the price does not fully return to the zone between the first and third candles and remains unreturned. This area is thus referred to as a Fair Value Gap.
Fair Value Gap represents price imbalance and acts as a support or resistance zone on the chart.
How Does FVG Work?
This gap works like a magnet, returning the price to restore balance. The price resumes its primary trend once the gap is revisited and corrected.
Simply put, FVG is an empty area on the chart that the price typically revisits before continuing its previous direction.
Types of FVG
Based on price movement, ICT FVG can be categorized into two types:
#1 Bullish Fair Value Gap
In a bullish market, a three-candle pattern may create a price gap. Bullish FVG forms when:
- The second candle has a large body;
- There is a gap between the first candle's high and the third candle's low.
This gap usually acts as strong support. The price often revisits this gap (to fill it) and then continues its upward movement.
#2 Bearish Fair Value Gap
In a bearish market, a three-candle pattern may create a price gap. Bearish FVG forms when:
- The second candle has a large body;
- There is a gap between the first candle's low and the third candle's high.
This gap acts as strong resistance. The price often revisits this gap (to fill it) and then resumes its downward movement.
How to Trade Using FVG in ICT?
To trade using Fair Value Gap (FVG) in ICT, follow these steps:
#1 Determine the Market Trend
- In an uptrend, prices form higher highs and higher lows;
- In a downtrend, prices form lower highs and lower lows.
#2 Identify Premium and Discount Zones
To Utilize Fair Value Gaps (FVG) in Trading, One Can Use Premium and Discount Zones:
- In a downtrend, traders locate FVG in the Premium Zone;
- In an uptrend, traders locate FVG in the Discount Zone.
#3 Identify the Significant Candle
- Find a candle with a large body and small wicks;
- Look for a strong bullish candle with a wide range in an uptrend;
- In a downtrend, look for a strong, bearish candle with a wide range.
#4 Analyze Surrounding Candles
Examine the candles before and after the significant candle. These should not overlap with the large candle's body. Such a structure confirms the presence of FVG between the wicks of the first and third candles.
#5 Mark the Fair Value Gap (FVG)
- In an uptrend, FVG is the gap between the first candle's high and the third candle's low;
- In a downtrend, FVG is the gap between the first candle's low and the third candle's high.
#6 Enter the Trade
Uptrend: Wait for the price to return to the Discount FVG zone. After testing the gap, use confirmations like price rejection or market structure shifts on lower timeframes to open a buy position.
Downtrend: Wait for the price to return to the Premium FVG zone. Upon reaching the gap, use confirmations to open a sell position.
#7 FVG Indicators
Indicators from [Tflab] can be used to facilitate the identification of Fair Value Gaps (FVG).
- ICT FVG Indicator for MetaTrader 4
- ICT FVG Indicator for MetaTrader 5
- ICT FVG Indicator for TradingView
Which Timeframes Are Best for FVG?
Fair Value Gaps (FVG) are analyzed across different timeframes:
- Use higher timeframes (e.g., daily) for overall market direction (Daily Bias);
- Use lower timeframes (e.g., 15 minutes) to pinpoint trade entries.
Best Markets for FVG
FVG was first introduced in indices like Nasdaq and S&P-500, achieving excellent results. Later, it was successfully applied to forex and has become an essential tool for traders in all markets.
Conclusion
Fair Value Gap (FVG) helps identify price imbalance zones where prices move quickly, bypassing market orders.
Traders can use these zones to find better entry and exit points. Proper understanding and usage of FVG can improve trading decisions and profitability.
