Fair Value Gap: Three Candles, the 50% Line, the Inversion

Measure the gap from candle one’s high to candle three’s low

Three 5-minute NQ candles have just printed, and the middle one is four times the size of its neighbors. The wick of the first candle and the wick of the third do not touch. That untouched space is the gap. It exists because the second candle moved so far that the candles on either side never traded through the same prices.

Take the three candles in the diagram. Candle one reaches a high of 20,010. Candle two runs from 20,006 to 20,042. Candle three opens above and its low is 20,030. The gap is 20,010 to 20,030, so 20 points wide, and its 50% line is 20,020. Every number on this page comes back to those three.

A bearish gap is the mirror. Measure candle one’s low and candle three’s high. Indicator vendors describe the pattern as an imbalance between buyers and sellers that price tends to revisit. Treat the story as a story. The chart shows a range that never traded, and nothing more.

Wicks matter here. A bullish gap needs candle three’s low to sit above candle one’s high, wick to wick, and a 2-point overlap means there is no gap. The middle candle is the same displacement that qualifies an order block, so the two objects often appear together: the block is the candle before the run, the gap is the hole the run left.

Enter at the 50% line and let the point value set the size

The entry is a return, not the run. In this NQ 5-minute example the run after candle three reaches 20,060, and price then drifts back over four candles into the gap. A limit order rests at the 50% line, 20,020. ICT vocabulary calls that fill consequent encroachment. It is a midpoint. The wick that fills it reaches 20,019 and the candle closes back at 20,031.

The stop goes at 20,005, five points below the gap’s lower edge of 20,010, so the risk is 20,020 minus 20,005, 15 points. The target is 20,065, the level above the run’s high at 20,060, so the reward is 20,065 minus 20,020, 45 points. That is 45 divided by 15, 3R. Each number is a rule set before the fill, and the 3R is the payoff if the target is reached, not a forecast.

Contract size turns points into dollars. CME Group lists the E-mini Nasdaq-100 (NQ) at 20 dollars per index point and the Micro E-mini (MNQ) at 2 dollars per point. On one MNQ contract the 15-point stop risks 30 dollars and the 45-point target pays 90, before commissions. On one NQ contract the same plan risks 300 dollars and pays 900.

Ten MNQ contracts risk the same 300 dollars as one NQ. The smaller contract lets you match the stop to the account rather than the account to the stop. The position size calculator does that arithmetic from a risk amount, a stop distance and a point value, and the Nasdaq chart analysis page covers the session times when NQ leaves the biggest gaps.

A close through the gap turns it into resistance

Gaps break. Suppose the same 20,010 to 20,030 gap holds on the first return, price runs, and an hour later it falls again. This time a 5-minute candle closes at 20,003, below the lower edge. The bullish gap has failed as support. Traders who use the term call the result an inverse or inversion FVG, IFVG for short.

The inversion has one rule: the gap keeps its edges and changes its side. The next return into 20,010 to 20,030 from below is read as a place where sellers may act, and the second panel of the diagram shows it. Price rises to 20,024, inside the old gap, and the next candle closes at 20,007. The stop for a short from inside the gap sits above 20,030, its upper edge.

This is the classic role reversal with a newer name. Fidelity describes broken support acting as resistance and broken resistance acting as support. The gap is a support band 20 points wide, and the close at 20,003 broke it. Whether that break is a change of character or a break of structure depends on the swing it took out, and the break of structure vs change of character page separates the two.

Fix the inversion rule as a close, not a wick. A wick to 20,004 that closes at 20,014 is a stop hit on the long and a gap that is still a gap. Only the close at 20,003 flips it. The same close-based logic keeps a chart from carrying two opposite labels on one band.

FVG vs imbalance: one object, three rulebooks

Imbalance is the older and wider word. In ICT vocabulary the two are close to interchangeable, and LuxAlgo’s tools draw both as the same shaded box. The differences sit in the rules people attach to the box, and the table sets three common readings of the 20,010 to 20,030 band side by side.

Pick one rulebook per chart. A trader who enters at 20,020 as a 50% line and then exits on the imbalance rule when price fills to 20,010 has mixed two systems and cannot tell afterwards which one failed. Name the object, write its entry and its invalidation, and apply the same pair to every gap on that timeframe.

Gaps do not have to fill, and the term has no measured edge

A strong NQ trend leaves a trail of open gaps. On a morning that runs 300 points, the 5-minute chart can print four or five bullish gaps and fill none of them for hours. The 20,020 limit order in the example fills only if price comes back. If it never does, the trade never happens, and that is the plan working, not failing.

The popularity of the term is separate from its performance. StatOasis published a backtest on 3 September 2026 that ran 648 ICT-style variants, including gap entries, on daily bars of SPY, QQQ, DIA and IWM, with no commissions or slippage. Its summary line is blunt: none of the 648 beat buy-and-hold on net profit. Most of the variants also failed to beat a random entry.

Two limits follow. The study covers US index ETFs on daily bars, so it says nothing about NQ on a 5-minute chart in either direction. And the 30-dollar risk on one MNQ contract excludes commissions, which on a micro contract can be a meaningful share of a 15-point stop. This page teaches how to measure and label the gap. It is not financial advice.

Keep all three candles and the return in the screenshot

A crop that starts at the return hides the gap’s edges. Keep the three candles, the run to 20,060, the return to 20,020 and the price axis in one image; about 40 candles of the 5-minute chart covers that. Crop out the order panel and the account balance before you upload, because the whole screenshot is what gets sent.

On your own chart, check one thing first: that candle three’s low really sits above candle one’s high, wick to wick, and read both numbers off the axis. The sample analysis shows how a report lays out Key Levels with a strength rating and a distance from price, so you can see whether the 20,010 to 20,030 band appears there and how it is rated.

When the report includes a trade plan, compare its invalidation condition with your close-through rule at 20,010. Then analyze your own chart and set the report’s levels against the band you measured.

Questions traders ask about FVGs

What is a fair value gap?

It is a three-candle pattern in which the first and third candles’ wicks do not overlap because the middle candle moved too far. For a bullish gap, measure candle one’s high to candle three’s low; in the NQ example, 20,010 to 20,030. A bearish gap runs from candle one’s low to candle three’s high.

How do you trade an FVG?

Wait for price to return. Rest a limit order at the 50% line, 20,020 in the example, with a stop a few points beyond the far edge, 20,005 here, and a target at a prior swing or the run’s high, 20,065. That is 15 points of risk against 45 of reward, 3R, with the contract’s point value deciding the dollars.

Do FVGs always get filled?

No. A strong trend leaves several gaps unfilled for hours or days, and the gap has no mechanism that pulls price back. A resting order at the 50% line simply does not fill. A gap that is filled and then closed through is no longer support; it has inverted.

What is an inverse FVG (IFVG)?

A gap that price has closed through. A bullish gap at 20,010 to 20,030 becomes an IFVG when a candle closes below 20,010, and the next return into the band is read as resistance. The edges stay the same; only the side you trade it from changes. Use a close, not a wick, to make the call.