What is ICT FVG ? – ICT Fair Value Gap Explained Step by Step !ICT FVG knowns as Fair Value Gap, is a three-candle formation having an un-retraced area between the high and low of 1st and 3rd candlestick.
A fair value gap is indicated by an imbalance and it acts as a level of support and resistance in the price chart.
This blog post will teach you all about the ICT FVG from their formation to identification and their use in trading.
You can jump to the section you are most interested in from below or can continue reading the whole article for better understanding.
Table of Contents
What is ICT FVG (Fair Value Gap)?
How to Identify an ICT Fair Value Gap?
Types of ICT FVG
(I) Bullish Fair Value Gap
(II) Bearish Fair Value Gap
ICT FVG Trading Strategy
Best Time Frame for ICT FVG Identification
Best Pair for ICT FVG Trading
Final Thoughts
What is ICT FVG (Fair Value Gap)?
ICT fair value gap is a three-candle structure indicating a gap between the high and low of 1st and 3rd candlestick.
The gap between three candles is created because price does not retrace in that area and leaves it open.
You can see the example of ICT FVG in the picture below :
ICT FVG acts as a magnet for price and price retrace back to the fair value gap to balance the price delivery.
After retracing to the FVG price then reverses and continues its trend .
How to Identify an ICT Fair Value Gap ?
To identify an ICT FVG, you need to look for a large candlestick with most body range.
After identifying the large candlestick, mark the high of candlestick prior to the large candle and low of the subsequent candlestick .
There will be a visible gap between the high and low of the two candlesticks which indicate the ICT fair value gap .
Types of ICT FVG
On the basis of price move the ICT FVG has two types which are explained below :
(I) Bullish Fair Value Gap
A bullish fair value gap in ICT terms appears during an uptrend with a three-candle pattern.
It happens when the middle candle has a large body , leaving a gap between the high of the first candle and the low of the third candle .
In an uptrend , a fair value gap can serve as strong support, with the price often retracing to fill the gap before moving higher .
You can see the example of bullish fair value gap in the picture below :
(II) Bearish Fair Value Gap
A bearish fair value gap appears in a downtrend within a three-candle pattern.
It forms when the middle candle has a large body, creating a gap between the low of the first candle and the high of the third candle .
In bearish trend a fair value gap can act as a good resistance and mostly price tends to fill this gap before moving lower .
You can see the example of bearish fair value gap in the picture below .
ICT FVG Trading Strategy
To trade using an ICT fair value gap, you need to go through below steps.
Step 1 – Determine Market Trend: First of all we need to identify the market trend of any asset whether it is bullish or bearish.
You can use ICT Daily Bias to anticipate the direction of price move.
In bullish trend price makes higher highs and higher lows, while in bearish trend price makes lower lows and lower highs
Step 2 – Identify Premium and Discount Zone: You would be looking for the premium fair value gap in bearish trend, while in bullish trend you would be looking for discount FVG.
Step 3 – Identify Large Candle:Once you have determined the trend, next step is to find a large candle with large body & small wicks.
If market is in bullish trend, we look for strong bullish candle with most body range while in bearish trend we look for large bearish candle with most body range.
Step 4 – Study Preceding & Proceeding Candles: Once you have identified one large candle, now study the one candle before it & the one candle after it.
Both of these candles should have such a structure that their bodies should not overlap the body of middle candle thus confirming a fair value gap between the wicks of first & third candle.
Step 4 – Mark Fair Value Gap: In bullish trend the gap between the high of first candle and the low of third candle.
While in bearish trend the gap between the low of first candle and the high of third candle will be marked as your fair value gap.
Step 6 – Execute the Trade: If the price is in bullish trend, we will wait for price to retrace and test the discount fair value gap to balance the move.
When price tests the discount fair value gap you can execute a buy trade with other technical confirmations like rejection or structure shift in lower time frame.
In the picture given below you can see price is in bullish trend making higher highs and higher lows.
It retraces back to test the fair value gaps and rejects from the fair value gaps, eventually going higher.
In a bearish trend, you would wait for the price to retrace up and test the premium fair value gap to balance the bearish price delivery.
When the price visits this gap, it can offer sell opportunities, especially when combined with additional confirmations like rejection or a shift in market structure.
In the image below, the market is in a downtrend, forming lower highs and lower lows.
It repeatedly tests bearish fair value gaps and rejects from these levels, leading to further price declines.
Best Time Frame for ICT FVG Identification
ICT FVG can serve different purpose, like it can be used as a tool to find the Daily Bias using higher timeframe like 1-Day.
But if you are using the fair value gap as a PD Array to find trade entry then you would be looking for a fair value gap in lower timeframes like 15-Minutes or lower than that.
Best Pair for ICT FVG Trading
Initially the ICT introduced the fair value gap using the index trading like Nasdaq and S&P-500 and it yielded best results in that market.
After that he demonstrated some examples of forex pairs using the FVG and it was equally good for that market too.
So, now a days ICT FVG serve as a key tool for traders in every market.
Final Thoughts
While trading using a fair value gap we should keep in mind that every fair value gap in the market is not tradeable , to trade using fair value gap, we should use it in conjugation with other strategies like demand & supply or support & resistance . At these levels fair value gaps can act as a more reliable tool to take a trade.
You can also check this article how traders use fair value gap to open the right trade.
Plus to mitigate your risks, you should always trade with stop loss in place as no strategy is foolproof in trading.
