ICT Theory × Institutional Investors & Smart Money | Part ② 'FVG (Fair Value Gap)攻略法'

What is FVG (Fair Value Gap)?

FVG refers to the “price gap” deliberately created by institutional investors through large orders.

? How FVG Forms

1. Institutions place large buy orders

2. Prices jump suddenly (a gap occurs)

3. A price range where no trades occur

4. Later, prices return to fill that gap

Key point:Since the market seeks “fair value,” it inherently tends to fill gaps.

Bullish FVG

An up-gap occurring during a sharp rally is called a bullish FVG. It is typically confirmed with the following three candles.

1. Bearish candle or small bullish candle

2. Huge bullish candle (rapid rally)

3. Bearish candle or small bullish candle

Here,a price-absent zone between the high of the first candle and the low of the third candlethat forms is the bullish FVG.

Characteristics of Bullish FVG

• If it appears during a bullish trendit can be a strong point to buy on dips

• Prices tend to retrace to themiddle or lower bound of the FVGthen resume rising

• Interpretation: “the place where institutions’ buy orders remain”and are left standing

Institutional Traders’ Expectations at Bullish FVG Formation

1. Building a large long position

   • If bought aggressively at once, price may surge too much

   • Prefer to add to positions gradually

2. Using retail traders’ “selling at highs”

   • Targeting profits being taken by retail after the rally

   • FVG pullback to shake out retail again

3. Efficient position building

   • Place additional buys at a lower price

   • Improve the average entry price

In short,bullish FVG can be interpreted as “a place where institutions absorb retail selling to buy more”.

Trading Strategy

• Buy on pullbacks

• In many cases, the price rebounds and rises before the gap is fully filled.

Bearish FVG

A downward gap occurring during a sharp decline is called a bearish FVG. It is typically confirmed with the following three candles.

1. Bullish candle or small bearish candle

2. Huge bearish candle (rapid drop)

3. Bullish candle or small bearish candle

Here, if a price-absent zone forms between the low of the first candle and the high of the third candle, that is the bearish FVG.

Characteristics of Bearish FVG

• If it appears during a bearish trendit is a strong point for selling on rallies

• Prices tend to retrace to themiddle or upper bound of the FVGthen resume falling

• Interpretation: “the place where institutions’ sell orders remain”and are left standing

Institutional Traders’ Expectations at Bearish FVG Formation

1. Building large short positions

   • If sold all at once, price may fall too much

   • Prefer to add to short positions gradually

2. Using retail traders’ “buying at lows”

   • Targeting retail buying after the drop

   • FVG pullback to shake out retail again

3. Efficient profit-taking

   • Place additional sells at a higher price

   • Improve the average selling price

In short,bearish FVG is“a place where institutions absorb retail buying to build large selling positions”.

Trading Strategy

• Aim for pullback selling

• In many cases, the gap is filled and price falls beforethe gap is fully filled

Combining FVG with Order Block Strategies

The strongest entry point is where OB and FVG areas overlap. Price ranges where both overlap have a much higher probability of reversal because institutional orders are concentrated there.

How to Use FVG by Timeframe

Daily FVG

• Use: Major trend reversal points

• Holding period: days to weeks

• Reliability: ★★★★★

4-H FVG

• Use: Entry for swing trades

• Holding period: hours to days

• Reliability: ★★★★☆

1-H FVG

• Use: Entry for day trading

• Holding period: within hours

• Reliability: ★★★☆☆

⚠️ Important Note

FVG on 15 minutes or smaller timeframes can be misleading, so beware!

• Could be retail noise rather than institutional moves

• Treat short-timeframe FVG as参考 only

Practical FVG Usage Rules

✅ Conditions for a good FVG

1. Occurs on daily or 4H chart

2. Appears within a clear trend

3. Gap width is moderate (about 1-3% of price)

4. Overlaps with important support/resistance

❌ FVGs to avoid

1. Occurred in ranging markets

2. Gap is too small (noise)

3. Gap is too large (e.g., around major economic announcements)

4. FVG already widely anticipated (have been consumed)

cautions in FVG trading

Common failure patterns

1. If the gap does not fill

   • Trend is too strong

   • Market moves sharply on major news

2. False FVGs

   • Unexpected gaps at economic data releases

   • Gaps in low-liquidity periods

3. Timeframe confusion

   • Overreliance on 15m FVG

   • Ignoring higher timeframe trend direction

? Countermeasures

• Weigh multiple confirmations (OB + FVG + trendlines, etc.)

• Check economic calendar

• Target high-liquidity times

? Key takeaways

• FVG represents intentional setups by institutional investors

• Institutions aim to entice retail to jump in, then absorb it

• Patience to wait for FVG pullbacks is the key to success