Implied Fair Value Gap (IFVG) is a significant imbalance area in ICT Style, indicating potential price trend reversals in financial markets.
Unlike most Fair Value Gaps (FVG), the IFVG refers to a subtle area where a price imbalance exists, but no clear and visible gap is formed.
What is the Implied Fair Value Gap (IFVG)?
The IFVG is a pattern composed of three candlesticks:
- A middle candlestick with a large body
- The preceding and succeeding candlesticks, where their wicks overlap the body of the middle candlestick
- In fact, this gap is a type of standard Fair Value Gap (FVG) that, despite becoming invalid in a particular direction, still remains a valuable supply or demand zone in the opposite direction.
This structure suggests that no explicit gap exists between the candles, yet it is still considered an area of price adjustment.
How to Identify IFVG?
Identifying the IFVG involves four steps that should be followed sequentially:
#1 Observe Price Movements
Begin by identifying sharp price movements. Look for candlesticks with large bodies, as they indicate rapid and significant changes in market structure.
#2 Analyze Adjacent Candlesticks
After identifying a large candlestick, examine its adjacent candlesticks (the one before and the one after).
If the shadows of these candlesticks overlap the large body's range, this overlap is recognized as theImplied Fair Value Gap (IFVG).
#3 Use Fibonacci Tool
To pinpoint the IFVG more accurately, apply the Fibonacci tool:
- Bullish pattern: Calculate 50% of the upper wick of the first candle and 50% of the lower wick on the third candle.
- Bearish pattern: Calculate 50% of the lower wick of the first candle and 50% of the upper wick on the third candle.
#4 Finalize the IFVG Identification
The gap between the calculated levels (using the Fibonacci tool) is defined as the IFVG. This zone serves as a favorable area for price reversal and helps in identifying market movements.
Note: To simplify the identification of Implied Fair Value Gaps (IFVG), traders can use the indicator developed by the [TFlab] team:
- TradingView version of the IFVG indicator
- MetaTrader 4 version of the IFVG indicator
- MetaTrader 5 version of the IFVG indicator
What is The Importance of IFVG in Trading?
The Implied Fair Value Gap (IFVG) has specific applications, including:
- Identifying hidden price adjustment zones that are not visible to most retail traders
- Optimizing entry and exit points for trades
- Enhancing the accuracy of trading strategies when combined with concepts like Order Blocks and market structure analysis
In the image below, a bullish example of an optimized Fair Value Gap is visible:
Conclusion
The ICT Implied Fair Value Gap (IFVG) is a concept within the ICT methodology that identifies hidden price imbalance areas.These zones are used as key points for trade entries and exits.
This type of fair value gap is identified by analyzing large candlesticks and observing the overlapping wicks of adjacent candles, offering an opportunity to capitalize on market structure changes.
