What is an ICT Fair Value Gap (FVG) in Trading? – Complete Strategy & Examples Download PDF
Fair Value Gap (FVG) is a concept from the Inner Circle Trader (ICT) methodology. It refers to a price imbalance or inefficiency created when the market moves so quickly that it skips over certain price levels.
If you’re a price action or smart money concept trader, you’ve probably heard of the Fair Value Gap (FVG). But what exactly is it, and how can you use it to make better trading decisions? This guide explains the ICT Fair Value Gap, how to spot bullish and bearish FVGs, real-world examples, and a proven FVG trading strategy
What Is a Fair Value Gap (FVG)?
A Fair Value Gap (FVG) is a three-candlestick price pattern used in smart money and ICT (Inner Circle Trader) trading concepts.
It occurs when the body of the second candle is not fully overlapped by the wicks of the first and third candles, creating a visible imbalance or “gap” in the price chart.
This gap in price represents an area where liquidity was not properly exchanged, meaning the market moved too quickly in one direction—either to the buy side or sell side—without returning to “fair value.”
Why Does This Happen?
FVGs form when:
- The market offers prices aggressively in one direction.
- There’s high momentum (news, volatility, stop hunts).
- Orders are left unfilled in the skipped zone.
These gaps often act as magnet zones, where price may return before continuing its trend.
What Is a Bearish Fair Value Gap?
A Bearish Fair Value Gap (FVG) is a price imbalance that forms when the market moves sharply downward, skipping over certain price levels without sufficient buying and selling activity.
A Bearish FVG occurs in a three-candle sequence, where the body of the second bearish candle is not overlapped by the wicks of the first and third candles.
This unfilled area indicates a lack of fair value and often becomes a high-probability sell zone when the price retraces.
What Is a Bullish Fair Value Gap?
Bullish Fair Value Gap (FVG) is a price imbalance that forms when the market moves sharply upward, skipping over certain price levels without enough selling pressure to create a balanced move.
A Bullish FVG is identified when the body of the second bullish candle is not overlapped by the wicks of the first and third candles in a three-candle pattern.
ICT Fair Value Trading Strategy
Find Daily Bias: Start by analyzing the chart on the Daily timeframe. Identify and mark key liquidity levels such as previous highs, lows, and imbalances. This process helps you understand the overall market direction—whether price is likely to come from a premium zone or head toward a discount zone
Mark ICT Kill Zones and Macro Time on the Chart: To align your entries with institutional trading activity, mark the ICT Kill Zones on your intraday chart—these include London Kill Zone (2 AM–5 AM EST) and New York Kill Zone (7 AM–10 AM EST). Also, mark the Macro Times (such as New York Open, London Open, and London Close) to help you identify liquidity grabs, false breakouts, and high-probability reversal windows.
Wait for Liquidity Sweep: You can refine your entries by looking for liquidity sweeps on the 15-minute or 5-minute charts. These sweeps signal potential areas where smart money may enter the market after triggering retail stop-losses.
If the daily trend is bullish, the ideal scenario is to wait for a sell-side liquidity sweep on the lower timeframes. This happens when price briefly dips below recent lows, forming bearish wicks that grab liquidity from traders who went long too early. This stop hunt often marks the accumulation phase before the price resumes its upward move.
If the daily trend is bearish, wait for a buy-side liquidity sweep. In this case, price spikes above recent highs with bullish wicks, taking out stop-losses of early short-sellers. This typically indicates a distribution phase, after which the price is likely to reverse and continue downward.
Confirm Market Structure Shift (MSS): After identifying a liquidity sweep, the next crucial step is to confirm a Market Structure Shift (MSS) on a lower timeframe, such as the 5-minute or 3-minute chart. This confirmation helps you avoid false breakouts and improves the precision of your entry.
After confirming a Market Structure Shift (MSS) and identifying a potential reversal point, the next step is to look for a Fair Value Gap (FVG) on the 1-minute chart. This is where price imbalance offers an ideal retracement entry.
Entry Rules
- Bullish Setup:
Buy when the price retests the Bullish FVG and shows bullish confirmation, such as a bullish engulfing candle or a pin bar signaling that buyers have regained control. - Bearish Setup:
Sell when price retests the Bearish FVG and shows bearish confirmation,n such as a bearish engulfing candle or a pin bar, indicating that sellers are taking over.
Where to Place Stoploss while trading FVG?
Place your Stop Loss just below the low of the first FVG candle in the bullish scenario and above the first candle wick in a bearish scenario.. This helps protect your position in case the price moves against your trade.
Where to Place Take Profit (TP) Targets in FVG Trading?
The first TP target is typically set at the next liquidity pool. These are levels where stop losses or orders are likely to accumulate, and the price is expected to react. Liquidity pools often occur at:
Previous swing highs for bullish setups.
Previous swing lows for bearish setups.
What is the win rate of the FVG trading strategy?
The win rate of any trading strategy, including one based on Fair Value Gaps (FVG), can vary significantly depending on several factors. While the FVG strategy has the potential to yield high-probability trades when combined with proper market structure analysis, liquidity sweeps, and trade confirmation.
A well-executed FVG strategy can yield a win rate of around 60%–75% in trending markets. This is because the market is more likely to fill the imbalance after liquidity sweeps, especially when combined with other tools like Market Structure Shifts (MSS) and support/resistance levels.
In sideways or ranging markets, the win rate can drop to around 40%–55%, as liquidity sweeps may not be as effective in such environments, leading to more false breakouts or failed FVG setups.
