Fair value gap (FVG): what it is, how to mark it and how to trade it

A fair value gap (FVG) is a three-candle gap. The middle candle moves so fast that, between the wick of the first candle and the wick of the third, a stretch of price is left that only traded in one direction. In a bullish FVG, the low of the third candle sits above the high of the first. In a bearish one, the high of the third sits below the low of the first.

It is an ICT (Inner Circle Trader) and smart money concept. The author's idea is that the gap is an imbalance the market tends to revisit. In practice, traders who use it don't trade it as a signal: they use it as an entry zone at the end of a sequence (liquidity sweep, displacement, and pullback). And it's worth knowing from the start: the best public test finds no edge for the FVG versus random zones of the same size.

A note on sources: there is no glossary written by Michael J. Huddleston himself. The rules come from secondary sources and are presented here as "the most cited version," not the official one.

Free tool: if you use NinjaTrader 8, you can download the FVG indicator we built at El Trader Financiado for the community. See the indicator and download it.

What a fair value gap is and its variants

The FVG describes something real: a stretch where price moved so forcefully that it left no two-way trading. What isn't proven is that price "has to come back." Some gaps fill quickly, others only halfway, and others never.

CE (consequent encroachment)

This is the 50% of the gap. In the most widespread version of the method, many models treat a touch of the midpoint as filled enough, which is why many entries are placed at the CE rather than at the edge.

IFVG (inverse fair value gap)

An IFVG appears when price closes through an FVG and exits on the other side. Broken support becomes resistance, or the other way around. It reads as a possible change of bias: the impulse that created the gap has run out.

BPR (balanced price range)

This is two opposite FVGs that overlap: a bullish gap and a bearish gap over the same stretch of price. The usual description presents it as the same stretch rebalanced from both directions and reads it as consolidation, not a directional opportunity. In the ICT community it's also used as an entry zone, but we haven't found primary rules for that.

Volume imbalance

This is a gap between the bodies of two consecutive candles, with wicks that do overlap. It's finer than an FVG: price did trade in that zone, just in one direction.

Higher-timeframe FVG (HTF FVG)

This is the gap on a high timeframe (1 hour, 4 hours, daily) used as a reference while you execute on a low timeframe: map on top, execute below.

What is not an FVG: the CME break gap

Futures have a trap of their own. CME index products pause every day from 16:00 to 17:00 Chicago time (17:00 to 18:00 New York). The gap that pause leaves between the last candle and the first candle of the new session is not an FVG: ICT calls it the NDOG (new day opening gap). If your chart shows those candles back to back, you'll see "FVGs" that aren't.

How to mark an FVG step by step

Marking gaps is easy; marking the ones that matter is not. This process sums up the sources (a synthesis, not a primary rule):

1. Set the bias on a higher timeframe. Look at 1 hour, 4 hours, or daily. Identify where the most obvious liquidity is (the draw on liquidity): previous day highs or lows, session extremes, equal highs or lows.
2. Wait for a sweep. Price has to pierce a visible level and come back. Without a sweep, the sequence hasn't started.
3. Require displacement. After the sweep there must be an energetic move the other way that closes beyond the most recent opposing swing. That move is the one that leaves the useful FVG.
4. Mark only the FVG from that move. Edges and CE. If the move leaves several gaps, the IFVG model prefers a single, clean one.
5. Filter by size. A minimum size by ATR or by percentage removes the one- or two-tick gaps that mean nothing.
6. Decide wick or close, and write it down. Is the FVG mitigated when a wick touches it or when a candle closes inside? Is it invalidated by a wick or by a close on the other side? What you choose changes the results.
7. Retire what no longer works. If price closes through the FVG, the original idea is invalidated and the gap becomes an IFVG.

FVG strategies: rules-based models

Almost all the named models share the same backbone: sweep → displacement or structure shift → pullback to a zone → target at the opposite liquidity. What changes is the entry zone (FVG, IFVG, breaker, OTE). And all of them are discretionary at every joint: what level counts as liquidity, how much displacement is enough, and which gap is the right one.

Pullback to a continuation FVG

This is the simplest use: after an impulse in the direction of the bias, you wait for price to return to the gap before joining. According to the usual ICT description, the entry goes inside the gap, normally at the midpoint, with the invalidation beyond the far edge and often inside a premium/discount context (buy in the lower half of the range, sell in the upper half; we explain it in the order block guide).

ICT 2022 Mentorship Model

The sequence is "raid → shift → entry":

1. Mark the liquidity pools on the 15-minute to 1-hour charts.
2. Price must sweep one, ideally inside the London killzone or the New York morning killzone.
3. MSS (market structure shift): "an energetic reversal move that closes through the most recent opposing swing" on the execution timeframe. A break with no prior sweep is discarded as noise.
4. Entry on the pullback to the FVG of that displacement, executing on 1 to 5 minutes.
5. Stop beyond the swept extreme. Target at the opposite liquidity pool.

The model is discretionary at every step and has no verified track record. The stop and target parameters circulating attributed to the mentorship couldn't be verified, so we don't include them.

IFVG model

It's a model that became popular in 2024–2025. These are the rules in its most widely shared version:

1. A clear, obvious, structure-based liquidity sweep.
2. After the sweep, a clean FVG, preferably a single one. Several gaps in the move reduce accuracy.
3. Price closes back through that FVG from the opposite side: the gap becomes an IFVG.
4. Entry on the return to the IFVG (limit or market), or at the close of the candle that crosses it if there's displacement, on the same timeframe as the inversion.
5. TP1 at the internal liquidity; final target at the major swing.

It is presented for NQ and ES in the New York session, combined with SMT divergence. The "high probability" label comes from those who promote it and comes with no data.

FVG inside the OTE

The OTE (optimal trade entry) is the 0.62–0.79 band of a Fibonacci drawn over the impulse; if the FVG falls inside it, both readings point to the same zone. How to draw it and when it counts is in the order block guide.

Summary of the models

There are two more models that use the FVG as a trigger and have their own guide: the Silver Bullet, which requires the gap to form inside a time window (we explain it in ICT killzones), and the Unicorn, which requires an FVG overlapping a breaker (we explain it in breaker block).

Timing: the NY morning killzone is 08:30–11:00 NY.

Common FVG mistakes

• Taking the fill for granted. A fill is a scenario to plan for, not a certainty. If your plan needs the gap to fill completely, in a strong trend you'll be left out or you'll enter late.
• Not filtering. Without a minimum size or context, every 1-minute impulse leaves three or four gaps. None of them is special.
• Trading it in isolation. FVGs are rarely traded alone. Without a sweep, without displacement, and without a clear liquidity target, an FVG is just a rectangle.
• Not declaring wick or close. On 30-minute YM, the percentage of unmitigated FVGs goes from 61-63% (measured by close) to 50-52% (measured by wick), according to data from a statistics-tool vendor, with no published sample. The rule you use changes what "works."
• Confusing the NDOG with an FVG or reading the BPR as a directional signal.

What to combine it with

The FVG is the shared trigger of almost the entire ICT sequence. What gives it context comes from other pieces:

• Where and when: liquidity levels (PDH/PDL, Asia and London extremes) and time windows. You'll find it in ICT killzones and in the session levels and killzones indicator.
• The displacement: the MSS that validates the gap. It's in the guide on order blocks and market structure.
• Cross-asset confirmation: the SMT divergence between NQ and ES, which is what the IFVG model uses.
• The reference range: a 4-hour CRT with entry at the lower-timeframe FVG (CRT trading).
• Neutral location filters: whether the FVG sits above or below the VWAP or the POC of the volume profile. This isn't ICT; it's a way to place the zone relative to the day's value.

More confluences reduce the number of trades and increase the risk of fitting the rules to what already happened. None has a placebo test showing that it improves the FVG.

What the evidence says

The best public test is negative. A study published on TradingView compares FVGs with placebo zones of the same height, direction, and distance, placed on bars with no gap, with a target, stop, and time limit. Across 14 measurements (crypto, forex, and stocks; 5, 30, and 60 minutes; two periods) no difference is significant. The aggregate difference is -0.04 percentage points. Its lesson: "a quoted hit rate without its baseline doesn't tell you whether something works."

The other useful data point comes from a forex broker's backtest, with a conflict of interest and no placebo: discretionary traders report a 70-80% hit rate with SMC, but when the rules are coded it "drops to 41%." That's the difference between marking gaps after the fact and trading them in real time.

Conclusion: the FVG is useful for defining where to enter and where you're wrong. It is not a proven edge on its own.

How it fits in a prop firm

In an evaluation, the problem isn't the pattern but the size of the stop. ICT models put it beyond the swept extreme, and in NQ that can be far:

With a $1,000 daily loss limit, a 40-point stop on an NQ leaves you one attempt and not much more. That's why the most useful adaptation is a simple rule: if the structural stop doesn't fit your risk per trade, there's no trade. Drop down to micros or pass.

Two more things:

• News. The NY morning killzone starts at 08:30, the time of CPI and NFP, and more data comes out at 10:00. Many prop firms restrict trading around these releases; check your firm's rules before leaving a limit order on an FVG.
• Consistency. Models that target distant liquidity have few big winners. That concentrates profit in a few days and can clash with the consistency rules of some firms.

You can compare daily loss, trailing drawdown, and news rules for each firm in the comparator.

Free NinjaTrader indicator

At El Trader Financiado we built an FVG indicator for NinjaTrader 8 that marks bullish and bearish gaps with their CE, trims them as they get filled, and flags the IFVGs. It's free, built by El Trader Financiado for the community, and available in English and Spanish. You can download it, with its settings guide, on the Fair Value Gap indicator page.

Frequently asked questions

What is an FVG in trading?

A three-candle gap: between the wick of the first candle and the wick of the third, a stretch is left that only traded in one direction. ICT considers it an imbalance that price tends to revisit; that is a claim by the author, not something proven.

What is the CE of an FVG?

Consequent encroachment: the 50% of the gap. Many models treat the FVG as "filled enough" when price touches that point, and use it as an entry level.

What is an IFVG?

An FVG that price has crossed with a close on the other side. It flips from support to resistance (or the reverse) and is used as an entry zone in the new direction.

Do FVGs always get filled?

No. Some fill quickly, others only to the CE, and others never. The "fill" figures in circulation have no baseline: any zone near price gets touched with a similar frequency.

Is mitigation measured by wick or by close?

There is no primary rule. Pick one, write it down, and don't change it to suit you. Measured by wick, many more gaps show up as mitigated.

Does the fair value gap really work?

The public placebo test finds no edge versus random zones of the same size. It helps structure the entry and the stop inside a plan, not as a signal on its own.

Keep learning

• The 8 free indicators for NinjaTrader 8
• Order blocks and market structure: BOS, CHoCH, and MSS
• Breaker block, mitigation block, and the Unicorn model
• ICT killzones and Silver Bullet
• Compare the rules of futures prop firms