Welcome to this comprehensive guide on the ICT Implied Fair Value Gap (IFVG), a hidden gem in trading strategies. By the end of this article, you’ll be equipped to identify and trade IFVGs like a seasoned trader.
What is ICT Implied Fair Value Gap (IFVG)?
The ICT Implied Fair Value Gap isn’t your typical fair value gap. It’s a subtle, often unseen gap that algorithms use to adjust and balance price movements in the market. An IFVG forms when the price makes a sharp move up or down, creating large candlesticks whose wicks overlap each other. This overlap means there’s no visible gap on the chart, but the gap exists in the price action.
Identifying the ICT Implied Fair Value Gap
Since IFVGs aren’t immediately visible, you’ll need to know what to look for:
- Look for Large Candlesticks with Overlapping Wicks
- Bullish IFVG: Find a big bullish candle (a candlestick with a large upward body). The wicks of the candles immediately before and after this candle should overlap its body, leaving no visible gap.
- Bearish IFVG: Locate a large bearish candle (a candlestick with a substantial downward body). The wicks of the adjacent candles should overlap its body similarly.
- Use the Fibonacci Tool to Find the Consequent Encroachment (50% Level)
- For the Bullish IFVG:
- Measure the 50% point (Consequent Encroachment) of the upper wick of the first candle (before the big bullish candle).
- Measure the 50% point of the lower wick of the third candle (after the big bullish candle).
- The area between these two points is your Bullish IFVG.
- For the Bullish IFVG:
For the Bearish IFVG:
- Find the 50% point of the lower wick of the first candle (before the big bearish candle).
- Find the 50% point of the upper wick of the third candle (after the big bearish candle).
- The space between these two levels is your Bearish IFVG.
How to Trade Using the ICT Implied Fair Value Gap
Trading with IFVGs involves a systematic approach:
Step 1: Determine the Market Trend
- Bullish Trend: The market makes higher highs and higher lows.
- Bearish Trend: The market makes lower lows and lower highs.
- Use tools like the ICT Daily Bias to help identify the trend.
Step 2: Wait for Confirmation
- In a bullish trend, wait for the price to touch a higher time-frame point of interest (like a support zone) and look for a market structure shift on a lower time frame.
- In a bearish trend, do the opposite.
Step 3: Identify the Large Candle
- Find a significant candle in the direction of the trend.
- Bullish Trend: Look for a strong bullish candle with a large body.
- Bearish Trend: Look for a strong bearish candle with a large body.
Step 4: Analyze Adjacent Candles
- Check the candles immediately before and after the large candle.
- Ensure their wicks overlap the body of the large candle, confirming the presence of an IFVG.
Step 5: Mark the Implied Fair Value Gap
- Use the Fibonacci tool to measure the 50% levels of the relevant wicks.
- Highlight the area between these levels as your IFVG.
- When the price retraces to this zone, consider executing your trade in the direction of the trend.
Conclusion
Mastering the ICT Implied Fair Value Gap can enhance your trading strategy by revealing hidden opportunities in the market. Practice identifying IFVGs on live charts to build your confidence and improve your trading decisions.
Frequently Asked Questions (FAQs)
An ICT Implied Fair Value Gap is a hidden price gap used by algorithms to balance the market. Unlike visible gaps, IFVGs are identified through overlapping candlestick wicks and specific measurements using the Fibonacci tool. They represent areas where the price may retrace, offering trading opportunities.
A regular Fair Value Gap is a visible gap on the chart where the price action skips levels, often due to high volatility or news events. An IFVG, however, is not immediately visible. It requires analyzing the wicks and bodies of specific candles to identify hidden gaps in the price action.
The Consequent Encroachment, or the 50% level of a candle’s wick, is crucial because it represents a balanced price point. By measuring this level on the relevant candles, traders can pinpoint the precise area of the IFVG, which often acts as a significant support or resistance zone.
Yes, IFVGs can be identified and traded across various time frames and markets, including forex, stocks, and commodities. However, higher time frames may provide more reliable signals, while lower time frames can offer more frequent trading opportunities but may involve more noise.
To effectively use IFVGs, integrate them with your current market analysis:
Trend Identification: Ensure you trade in the direction of the prevailing trend.
Confirmation: Use additional indicators or price action signals to confirm potential trades.
Risk Management: Always apply proper risk management techniques, such as setting stop-loss orders.
Practice: Spend time identifying IFVGs on historical charts to understand their behavior before trading live.