Inverse Fair Value Gap

The rules

1. The gap: a clean three-candle fair value gap left by displacement.
2. The failure: a candle body closes beyond the far side of the gap. A wick through it does not count.
3. The flip: a failed bullish gap becomes resistance; a failed bearish gap becomes support.
4. The read: the move that made the gap is exhausted, so bias can turn.
5. The retest: wait for price to come back into the inverted gap and reject it.
6. Consequent encroachment: the 50% of the gap, a common entry and invalidation reference.

How to mark it

1. Mark a fair value gap left by a displacement move.
2. Wait for a candle to close through it with its body.
3. Relabel the zone: support becomes resistance (or the reverse).
4. Wait for price to return into the inverted gap; do not chase the break.
5. Enter on the rejection, stop beyond the gap, target the next liquidity.

The 1:3 trade

Entry at the gap's 50% on the retest from below. Stop above the top of the gap. Target the low the breakdown left, where sell-side liquidity rests. Reward is exactly three times the risk.

Before you enter

• A real fair value gap from displacement
• A body close through the far side of the gap
• Price came back into the inverted gap
• Clear rejection inside the gap
• Stop beyond the gap, target the next low or high

Common mistakes

• Calling a wick through the gap an inversion
• Selling the breakdown candle instead of waiting for the retest
• Keeping the old bias after the gap failed
• Stops inside the gap instead of beyond it
• Treating every tiny gap as an IFVG

Key terms

• Fair value gap: three-candle imbalance left by a one-way move
• IFVG: a fair value gap that failed and flipped its role
• Body close: the candle's close, not its wick, beyond a level
• Consequent encroachment: the 50% level of a gap
• Sell-side liquidity: stops resting below a low
• R:R: reward divided by risk; 1:3 means 3R for 1R risked

A gap that breaks with a body close flips. Trade the retest, not the break.