Implied Fair Value Gap (IFVG)

Definition

An Implied Fair Value Gap occurs in a 3-candle displacement sequence where the wicks of Candle 1 and Candle 3 overlap (meaning there is NO visible standard FVG), but an implied imbalance still exists within those overlapping wicks. The IFVG zone is identified using the Consequent Encroachment method: for a Bullish IFVG, the zone spans from the 50% midpoint of Candle 1's upper wick to the 50% midpoint of Candle 3's lower wick. For a Bearish IFVG, the zone spans from the 50% midpoint of Candle 3's upper wick to the 50% midpoint of Candle 1's lower wick. This mathematically derived zone represents the 'implied' imbalance that still attracts price for rebalancing.

Why It Matters

IFVGs reveal institutional imbalances that standard FVG identification completely misses. Since the wicks overlap, most traders see no gap and skip the setup entirely. However, the algorithm still recognizes the imbalance within those wicks and will seek to rebalance through it. IFVGs often act as the precise entry zone during retracements — price fills the implied gap even though no visible gap exists on the chart.

How to Identify

1. Identify a 3-candle displacement sequence (strong momentum move with a large-bodied middle candle) on your working timeframe.
2. Check for a standard FVG first (Candle 1 wick high < Candle 3 wick low for bullish, or Candle 1 wick low > Candle 3 wick high for bearish). If a standard FVG exists, use that instead.
3. If NO standard FVG exists (wicks of C1 and C3 overlap), check for an IFVG using the 50% wick midpoint method.
4. For Bullish IFVG: Calculate the 50% midpoint of Candle 1's upper wick (between C1 body high and C1 wick high) and the 50% midpoint of Candle 3's lower wick (between C3 wick low and C3 body low). If C1's wick midpoint is below C3's wick midpoint, the zone between them is the Bullish IFVG.
5. For Bearish IFVG: Calculate the 50% midpoint of Candle 1's lower wick and the 50% midpoint of Candle 3's upper wick. If C1's wick midpoint is above C3's wick midpoint, the zone between them is the Bearish IFVG.
6. The IFVG zone is typically narrower than a standard FVG — this makes entries more precise but the zone can fill quickly.

How to Trade

1. Identify the IFVG on your entry timeframe (1m-15m) within the context of a larger trade idea (HTF bias + killzone + MSS).
2. Mark the IFVG zone — the area between Candle 1's body close/open (near side) and Candle 3's body open/close (near side).
3. Wait for price to retrace into the IFVG zone. Since IFVGs are narrow, limit orders at the zone boundary can be effective (more precise than market orders).
4. Stop loss goes beyond the displacement candle (Candle 2) extreme or beyond the full wick range of the 3-candle sequence.
5. Target the next liquidity pool or PD array in the trade direction.
6. If the IFVG zone is fully closed (price passes through it with conviction), it is no longer valid — treat it as filled.

Common Confusions

Pre-Trade Checklist

• Three-candle sequence identified?
• Wicks overlap (no visible gap)?
• 50% wick midpoints calculated?
• Hidden imbalance zone marked?
• Displacement context present?

Related Concepts

More FVG Concepts