Inverse Fair Value Gap (iFVG) vs Fair Value Gap

An inverse fair value gap, or iFVG, represents a failed fair value gap zone that becomes valid after a breakout and also indicates a shift in market momentum.

If a fair value gap breaks, then it does not mean that it was not a valid fair value gap; instead, it will now act as an inverse fair value gap.

Actually, not every fair value gap in the market is tradeable, and it depends on the pattern’s location on the chart. For example, whether the fair value gap formed in the overbought area or oversold area, or after what type of confluences the FVG zone formed. So, we should not panic after a failed fair value gap; instead, we can also trade it in the inverse direction.

In this post, I will explain both the fair value gap and the inverse fair value gap so you can use them in your analysis, so read the post fully and don’t skip any step.

How to identify an inverse fair value gap?

To identify a valid inverse fair value gap, you must find it at an appropriate location on the chart. Because if you are finding a bullish pattern at an already overbought price, then most likely you will lose that trade because the price has already completed the bullish move.

So follow the below steps for the correct identification of an iFVG on a candlestick chart:

• Find the iFVGs only at the extreme swing points. I mean at overbought or oversold zones because the iFVG is a reversal pattern; that’s why we will only look at the overbought or oversold zones for trend reversals.
• Identify a big body candlestick with a gap and mark the FVG zone here.
• Now wait for the price to break the zone completely and close in the opposite direction of the zone.
• Then wait for the price to retrace to the zone and then open the trade. Do not open the trade instantly after the break because it will be an aggressive trade setup. Our focus will be to only trade after a retracement.

Also check the image below for a clear understanding of this pattern.

Now let me explain the two types of iFVGs in smart money concepts.

Types of iFVGs

There are two types of iFVGs based on the pattern location and breakout direction:

• Bullish inverse fair value gap
• Bearish inverse fair value gap

Bearish iFVG

When the price breaks the bullish FVG zone in the overbought region and closes below the low of the bullish FVG zone, then an inverse bearish fair value gap forms.

After the breakout, the fair value gap acts as a resistance zone for the price, and the price mostly bounces from the zone and makes a bearish trend.

Bullish iFVG

When the price breaks the bearish FVG zone in the oversold region and closes above the high of the bearish FVG zone, then an inverse bullish fair value gap forms.

After the formation of this pattern, the price will bounce off the bullish iFVG and make a bullish price trend.

Difference between FVG and iFVG

A fair value gap is a simple price gap formation in the form of a big-bodied candlestick, and this gap attracts the price like a magnet, and then the price bounces from this zone.

So what will happen if, instead of bouncing from the zone, the price breaks that fair value gap easily? It does not mean it was a wrong fair value gap or it was not accurate. The fair value gap was good, but the breakout shows that the market momentum has shifted because it engulfed all the pending orders. And now this zone will act as a key level for traders to open pending orders in the direction of market momentum.

That’s why we can also trade a failed fair value gap and make a profit from it.

How to trade iFVG in trading?

As I always recommend, traders should use confluences with the trading pattern to increase the winning ratio and avoid trading bad trade setups.

Here I would suggest the addition of a retracement factor to the iFVG zone.

So follow the trading plan below:

• First, identify an iFVG zone on the chart at an overbought or oversold region. For example, if there is a bullish trend on a higher timeframe in the long run, then you should look for bullish iFVGs on the lower timeframe. Remember that high-probability bullish iFVGs will form in the oversold region.
• After marking the iFVG zone, wait for the price to retrace to the zone.
• Open a sell/buy order at the iFVG zone on the retracement and place your stop loss on the opposite side of the zone. and take profit at the previous swing low or using fibonacci extension levels. Also remember that you can wait for the formation of a reversal candlestick at the zone in a lower timeframe for an instant trade entry.

I hope you will like this technical trading plan, and remember to follow risk management because without risk management, you cannot win in trading in the long run.

Conclusion

The iFVG is also a strong trading pattern if we use it with the confluence of a trend. You can also make your own trading plan or enhance an existing trading strategy by using this iFVG pattern.

If you have any questions related to the fair value gap or inverse fair value gap, then don’t forget to ask in the comments. I will try my best to help you.