Fair Value Gap (FVG) Trading Framework: Entry, Invalidation, and Targets

Fair Value Gaps are not trade signals by themselves. They are inefficiencies price tends to revisit. The edge comes from a repeatable framework that filters which gaps to trade and how to execute them.

Classify the gap first. There are three types: FVG (standard three-candle imbalance), IFVG (inverse, created when a gap is broken and flips polarity), and BPR (balanced price range, two overlapping gaps). Only standard FVGs and BPRs are high-probability on the first retest; IFVGs work best as confirmation flips.

Direction bias. Only trade bullish FVGs when the higher timeframe (HTF) bias is bullish, and bearish FVGs when HTF bias is bearish. A bullish FVG inside an H4 discount array after an H4 BOS is your A+ setup. An FVG against HTF bias is a trap roughly 65% of the time.

Entry trigger. Do not blindly place limit orders at the gap edge. Wait for price to enter the gap (at least 50% fill), then require a lower-timeframe (5m or 1m) CHoCH or displacement candle in your direction. This filter alone removes most gap fades where price slices straight through.

Invalidation. Stop goes 3-5 pips beyond the far side of the gap. If a bullish FVG closes below its lower edge on the HTF candle close, the inefficiency is invalidated. Use candle close, not wick, to avoid being stopped out by wick sweeps.

Target logic. First target is the origin of the displacement that created the gap (1:2 minimum). Second target is the nearest opposing liquidity pool (equal highs/lows, session highs). Move stop to break-even after the first target and let the runner work.

Time filter. If price has not reacted to an FVG within 5 candles of first touch, downrank it. Stale gaps on intraday timeframes lose potency as new liquidity builds. On the daily chart, the window extends to roughly 10-15 bars.

Confluence stacking. An FVG that aligns with a 0.5 or 0.618 Fibonacci retracement of the displacement leg, plus a premium/discount equilibrium, raises expectancy by roughly 25% versus a naked gap. Stack two confluences, never more, to avoid analysis paralysis.

Avoid the common mistake of trading every visible gap. Quality over quantity: most full-time SMC traders execute 2-4 clean FVG setups per week per instrument, not 20.