ICT Fair Value Gap (FVG)

A fair value gap (FVG) is a three-candle pattern in which a strong middle candle moves so fast that the wicks of the first and third candles do not overlap, leaving a range that only traded one way. The name is ICT’s own, and he reads the gap as an inefficiency that price may come back to.

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What a fair value gap is

A fair value gap is the part of a fast candle’s range that the candles either side of it never traded into. It is measured wick to wick: in a move up, from the high of candle 1 to the low of candle 3. Candle 2, the fast one, is where the gap sits.

ICT defines it as “a range in price delivery where one side of the market liquidity is offered” 0:37. In a fast move down, he says, candle 2 leaves a space where “price is only being offered on the sell side” 12:25: sellers traded there, buyers never did.

The term is his: “something I introduced back in 2016” 30:03. He named it for what it shows, a market that “moves away too quickly” and leaves an inefficiency “by means of an imbalance in price” 3:53, and he also calls the pattern an imbalance 17:53 or an inefficiency. In order-flow trading, “imbalance” means a ratio of buy orders to sell orders, a different idea that only shares the word.

Because only one side traded in the gap, ICT expects price to come back to it: “we’re going to expect price to eventually want to trade back up into that little gapped area” 6:15. That is a bias, not a promise, and not every gap fills.

Displacement leaves a gap

Displacement is what makes a fair value gap worth watching: candle 2 has to be a strong, fast, one-sided move. ICT ties the two words together: “the term quick is linked directly to the term displacement ... it’s got to be energetic, it can’t be a little lethargic little move” 19:12. Displacement has its own section in ICT Market Structure.

ICT gives no size rule for displacement, and minimum sizes you may see online are other teachers’ filters. Judge it by eye against the candles around it.

Where the gap forms matters as much as its shape. ICT says the best bearish gaps come “after a run into buy side liquidity” 15:12: price runs above an old high and takes the stops there (ICT Liquidity), then breaks down with force, the market structure shift covered in ICT Market Structure. The gap that break leaves is where he looks to sell. Without one, he waits: “if there is no fair value gap in here, guess what, you don’t have a trade” 22:00.

How to identify one: the three-candle rule

To identify a fair value gap, compare the wicks of candle 1 and candle 3: if they do not overlap, the space between them is the gap. In ICT’s words, “it’s a three candle formation” 12:00, and “the number two candle is always going to be where the gap resides” 16:54.

1. Find the fast candle. That is candle 2, with candle 1 before it and candle 3 after it.
2. Mark the two wicks. Moving up: candle 1’s high and candle 3’s low. Moving down: candle 1’s low and candle 3’s high.
3. Check for space. If the wicks do not overlap, the space between them is the gap. If they touch or overlap, there is no gap.

For a bullish gap, ICT puts it this way: “candle number one’s high, that is the low of the fair value gap, candle number three’s low is the high of the fair value gap” 22:56. A bearish gap is the mirror.

Use the wicks, not the bodies. If candle 3’s wick dips into candle 1’s range, there is no fair value gap. A space between the close of one candle and the open of the next, with the wicks still overlapping, is a different pattern, the volume imbalance, covered in ICT ImbalancesComing soon.

BISI and SIBI

BISI and SIBI are ICT’s names for the two directions of a fair value gap. A bullish gap is a buy side imbalance, sell side inefficiency (BISI); a bearish gap is a sell side imbalance, buy side inefficiency (SIBI). In a 2024 lecture he described a down-close candle that makes a fair value gap as a SIBI, and an up-close one as “the opposite”, a BISI 1:16:33.

Each name has two halves. In a BISI, candle 2 only moved up: the buying was one-sided (the buy side imbalance), and selling never traded through that range (the sell side inefficiency). In ICT’s words, “it’s inefficient in offering down delivery” 4:12. A SIBI is the mirror 6:02.

The acronyms come and go in his teaching: absent from the 2022 mentorship episodes that teach the gap, common in his 2023 lectures, and still in use in 2024. This guide leads with the plain words, bullish gap and bearish gap.

Consequent encroachment: the 50% line

Consequent encroachment (CE) is ICT’s name for the halfway line of a fair value gap, midway between its top and its bottom. In 2023 he set it apart from a similar term: “consequent encroachment is half of any inefficiency or gap, mean threshold is half of any order block, there’s a distinction there, it’s very important to keep that distinction” 38:14.

So CE and mean threshold are not two names for one line, though many sites treat them that way. CE belongs to a gap, drawn wick to wick. The mean threshold is the halfway line of an order block, which his Core Content lesson measures on the candle body, open to close: “do not use the wicks” 10:02. The order block’s line is covered in ICT Order BlockComing soon.

ICT uses CE to judge how deep price has come into a gap. He splits the gap into quadrants and grades price by them: “look at the quadrants when you’re grading in an inefficiency” 53:49. In his 2024 lecture, short at a bearish gap, he adds to the trade as price taps the lower quadrant, then CE, then the upper half 30:29.

How price treats a gap

Price coming back to a fair value gap does one of three things: it touches the gap, it reaches consequent encroachment, or a candle body closes through it and the gap fails. This guide uses those three words only.

• Touched. Price trades into the near edge, short of the 50% line, then moves away.
• Reached CE. Price trades to the 50% line; what matters next is where the bodies close.
• Closed through. A candle body closes beyond the far edge. The gap has failed.

A wick through the gap is tolerated; the body close decides. In his 2024 lecture, short at a bearish gap, ICT lets price wick through candle 1’s low, the far edge, as long as the bodies stay inside: “we allow for the wick to form through it but we don’t ... ever want to see the bodies close above it” 32:00.

A gap that fails is information. ICT says he knew “how to find fair value gaps that fail” 31:43, and when price stops him out at a gap, “that means I’m probably looking at an inversion fair value gap” 33:05: a failed gap that price may later use from the other side, covered in ICT ImbalancesComing soon.

The same rules shape his trade at a gap. For a short, his simplest entry in 2022 is a limit order just above candle 3’s high, with the stop above candle 1 or candle 2 17:21. In 2024 he gives it as “candle number three, its high, minus one tick”, and tells beginners to trade one contract rather than build big positions 35:28. For the target he takes the closest old low or another imbalance, the “low hanging fruit” 48:09. A gap inside a range is what ICT counts as internal range liquidity (ICT Liquidity).

Fair value gap or order block?

A fair value gap marks the price range a fast move skipped; an order block marks the candles the move started from. The two often sit side by side, and in his 2022 teaching an order block needs a gap: “what makes an order block valid? It has to have an imbalance. Without the imbalance, there is no order block” 40:51.

In one 2024 lecture he said that, of an order-block range holding a breaker, a fair value gap and an optimal trade entry, none has “any distinct advantage”; he wants several agreeing, not one 2:09:34. In his 2024 gap lecture he chose the gap on purpose: “I’m not trying to buy an order block today, I’m trying to trade the fair value gap” 1:32:47. The full comparison is in ICT Order BlockComing soon.

Through the Quarterly Theory lens

Quarterly Theory reads a fair value gap by the clock. Every cycle, from the year down to the 22.5-minute Micro, has four quarters, and the previous quarter’s high and low are the fixed reference. ICT wants his gap after a run on liquidity; Quarterly Theory reads that run across a triad. When one or two of the triad run the previous quarter’s high or low while the rest hold, that is an SSMT, and the move away from it can leave the kind of gap ICT looks for. SSMT divergence covers it in full, and Correlated triads explains why the assets are read together.

Quarterly Theory also gives the direction: the True Open, the opening price of each cycle’s second quarter. Price above it is premium, below it is discount. A bearish gap that forms above the True Open sits in premium: a short bias, with discount below as the target. True Opens covers the levels.

Trader Daye (@traderdaye), who created Quarterly Theory, carries the gap into the PSP, a three-candle swing whose middle candle closes against the other assets in its triad. He reads its wick as a gap that price tends to come back into, when there's SMT behind it (more in the PSP guide).

Through the Quarter Sequence lens

The Quarter Sequence model puts the fair value gap in the first slot. Step one is higher-timeframe key levels, with Fair Value Gap and Balance Price Range listed under it; step two is the True Opens, used as premium and discount and in synchronization; and then the whole read is filtered through Quarter Sequence. So the gap answers where, the True Opens answer which side, and Quarter Sequence answers when.

The when is a chain: three or more adjacent nested cycles in the same quarter, a window that opens and closes on the clock. The divergence that counts inside it is a QS SMT, an SSMT that forms while the chain is live, and a qCISD, a candle body closing back through the body of the SSMT candle, is one way to confirm it. What is Quarter Sequence? covers chains in full.