Fair Value Gaps

Fair Value Gaps (FVG) Trading

A three-candle wick-gap convention. The pattern is observable in OHLC data; calling it inefficiency or institutional imbalance requires separate order-book/trade evidence.

Identification

Bullish FVG

1. Strong bullish middle candle
2. Gap between Candle 1 high and Candle 3 low
3. Zone = the unfilled gap area

Bearish FVG

1. Strong bearish middle candle
2. Gap between Candle 1 low and Candle 3 high
3. Zone = the unfilled gap area

Quality Factors

• Normalize gap size by ATR, spread, and middle-candle range.
• Record preceding swing/sweep, time-of-day relative volume, and higher-timeframe state as features.
• Calibrate thresholds and interactions; do not convert them into untested quality labels.

Workflow

1. Identify FVG after impulsive move using candle data:

   get_candles_around_date(symbol=<symbol>, exchange=<exchange>, interval=<interval>, date=<date>)
   

2. Mark the zone using draw_chart_analysis with type demand (bullish) or supply (bearish)
3. Wait for retracement into the gap
4. Choose an entry rule — near boundary, midpoint, full traversal, or price confirmation; select in training data only
5. Stop loss beyond the full FVG boundary
6. Target the high/low of the impulse move

FVG + Order Block Confluence

Record overlap with a separately defined order-block zone and test whether it adds value over FVG alone; the labels are correlated price-derived features.

Evidence and Validation

• Treat the setup as a testable hypothesis, not a prediction. Define thresholds, entry, invalidation, and exit before evaluating outcomes.
• Calibrate on the same instrument, venue, session, and timeframe. Use closed candles and a held-out or walk-forward sample; record every variant tried.
• Include spread, fees, slippage, borrow or funding, partial fills, and latency. Reject the setup when net expectancy is not positive or depends on one narrow parameter.
• Return observed inputs, missing data, cost assumptions, entry, invalidation, exit, and a valid, watch, or no-trade status.
• Research basis: The three-candle definition follows the ICT convention, but independent market-microstructure research links price changes to observable order-flow imbalance and depth—not to guaranteed gap fills.

Key Rules

• Estimate touch and fill rates with a fixed horizon and competing-risk rule; do not call gaps magnets.
• Expire zones after a predeclared time and retain unfilled zones in the denominator.
• Test stacked gaps and higher-timeframe alignment rather than assuming directional strength.
• The midpoint is a coordinate, not an empirically privileged entry.

Related Skills

• order-blocks — test overlap between two explicitly defined candle-zone conventions
• premium-discount — Enter FVGs in discount for longs, premium for shorts