A Fair Value Gap is a three-candle pattern where the wicks of candle 1 and candle 3 do not overlap, creating an imbalance or gap in price. FVGs represent areas where price moved so aggressively that there was insufficient opposite-side liquidity. Price tends to retrace into FVGs before continuing, making them excellent entry zones.
Three-candle pattern with a gap between candle 1 wick and candle 3 wick, Bullish FVG: gap above between candle 1 high and candle 3 low. Bearish FVG: gap below between candle 1 low and candle 3 high. Consequent encroachment: 50% of the FVG. Inversion FVGs: when a filled FVG acts as S/R.
Price pulls back into an unfilled FVG in the direction of the trend, Entry at the premium/discount edge of the FVG (or 50% CE level), FVG in confluence with an order block, HTF FVG with LTF confirmation entry
Stop beyond the FVG boundary, Target the next liquidity pool or OB, Partial fill: if price fills only 50%, it may continue from CE
FVGs appear on all timeframes; 1H/4H FVGs are most tradable, 15M for entries
The most powerful FVGs are those aligned with the prevailing trend on a higher timeframe. FVGs against the trend are more likely to be fully filled and invalidated.
A Break of Structure occurs when price breaks a previous swing high (in an uptrend, confirming continuation) or swing low (in a downtrend, confirming continuation). BOS confirms the prevailing trend and is used to trail bias. Internal BOS occurs within a trend leg; external or structural BOS breaks the last significant swing.
Inducement is a Smart Money Concept describing the deliberate engineering of liquidity pools by institutional traders to attract retail orders before reversing price. Inducement patterns occur when price creates minor highs or lows that entice retail traders to enter positions or place stops, providing the liquidity that smart money needs to fill large orders in the opposite direction.
The Optimal Trade Entry is an ICT concept that identifies the highest-probability retracement zone for entering trades in the direction of the prevailing trend or order flow. The OTE zone sits between the sixty-two and seventy-nine percent Fibonacci retracement of the most recent impulsive leg, which aligns with institutional re-entry pricing. Entries at the OTE provide favourable risk-to-reward ratios because the stop is placed just beyond the swing point.
An order block is the last opposing candle before a strong institutional move — the final bearish candle before a bullish impulse (bullish OB) or the final bullish candle before a bearish impulse (bearish OB). Order blocks represent zones where institutions placed large orders, and price tends to return to these zones for continuation.