Fair Value Gaps

The market targets two things:

1. Liquidity (in the form of swing highs and lows)
2. Imbalances (in the form of fair value gaps)

Fair value gaps are the basis of ICT’s 2022 Entry Model, which focuses on entry from a FVG within a
specific time window for each session of the day.

A Fair Value Gap is a 3-candle pattern. It involves an imbalance between buyers and sellers
between these three candles.

Example 1: Bullish Fair Value Gap (FVG)

In the example below, you see a bullish FVG. We extend a line from the bottom of candle 3 and we
extend a line from the top of candle 1. Notice there is a gap in price. The market trades back into
this gap, providing us with an entry to go long, targeting buy-side liquidity.

The example above illustrates that buyside has been offered (price is moving up), although sell-side
has not been offered (as this gap remains open). This is why ICT refers to a bullish FVG as a BISI
(buy-side imbalance, sell-side inefficiency)
Example 2: Bullish FVG accompanied with time

Notice in the example below, if we extend the fair value gap out in time, price returns to it. Think of
a fair value gap as a magnet that attracts price to it. Note the time in which price returns to the fair
value gap (being between 10am – 11am), which is the New York AM Silver Bullet.

Fair value gaps will exist throughout the market, even outside of key timeframes mentioned in
earlier PDF’s. However, I personally only use them as entry points when time is in my favour.

Fair value gaps can be used in a range of ways. For example, they can be used as an entry point OR
they can be used as a target when you are already in a trade.

Just like any PD array mentioned by ICT, FVG’s will occur on all timeframes and so they are a simple
way to navigate the markets, regardless on what type of trader you are.
Example 3: Bearish FVG (SIBI)

A bearish FVG is the opposite of a bullish FVG. Sell-side delivery has been offered, although buy-side
delivering is lacking. Hence, ICT coins these a SIBI (Sell side imbalance, buy-side inefficiency)
In the example below, notice the bearish FVG formed from the bottom of candle 1 to the top of
candle 3. Price returns to the fair value gap and uses it as a form of resistance before continuing to
the downside.

Similar principles apply to the bearish FVG. In the example below, notice the bearish FVG marked
out in red. Price returns to this in a key timeframe (10am – 11am) and provides an opportunity to go
short targeting sell-side liquidity.
But how do I know that a FVG will hold?

And importantly, how can you determine which FVG to enter from, if there are multiple FVG’s?

These are two questions I am asked quite frequently and I asked them myself when I first started
trading. I will provide example below with explanations to cover these topics, explaining different
approaches that you can take based on your trading style.

In this example, notice there are three bearish FVG’s. I have used my fibonacci tool from the price
leg that created the market structure shift. Notice the values 0 and 1. One method to pick the right
FVG is to only execute on FVG’s that are above the 0.5 level of fibonacci, in other words they are in a
level of premium (good selling price). That will then eliminate SIBI 3 and leave you with two FVG’s
you can enter from.

Approach 1: Take a partial position in SIBI 2 and if price returns to SIBI 1 increase position. This
method allows you to take advantage of the trade, even if price doesn’t return to the top FVG. If
price fails to return to the top FVG and displaces past the next low, we call this a breakaway gap
(indicates bearish price action)

Approach 2: Only take a position in SIBI 1 (although it may not give you an entry). While this
method will provide you with the best entry, you will find that sometimes you will miss the trade.
Now on the topic of price behaviour in the FVG itself…

In the example below, I have used the Fibonacci tool to measure the half way point of the FVG itself.
Here are a few rules that generally are the case when looking at FVG’S.

• If a body of a candle or multiple bodies of a candle close above 0.5 level of a bearish FVG, it can be
assumed that in most cases the FVG may not hold and price will continue higher.
• If the bodies of the candles respect the 0.5 level of the FVG (as shown below) and only the wicks
breach the 0.5 level, it can be assumed that the FVG should hold, and the short position has a high
probability of working out.

Let me add in one more factor to consider…

If a bullish or bearish FVG is disrespected (bodies of candles close outside of it), I suggest looking close by to
see if there is an order block that price may want to tap into.
• Measure the 0.5 level of this order block and anticipate that this should hold.
• If both the FVG and order block do not hold, then chances are the stop may be taken (and that is
okay)
I will cover order blocks in more details in a further PDF