Inverse Fair Value Gap: What Is It and How It Works?

What Is an Inverse Fair Value Gap in Trading?

An inverse fair value gap (IFVG) is a type of price imbalance that occurs during a strong and sudden market movement, typically in trending conditions. It reflects a moment when price moves so quickly in one direction that it leaves a portion of the previous price range untraded or “skipped.”

This gap signals that buying or selling pressure was so dominant that the market didn’t pause to offer fair value across all price levels.

Unlike a standard fair value gap (FVG), which often points to areas where price may return for rebalancing, the inverse fair value gap suggests continuation rather than retracement. Traders typically use it to identify high-momentum zones where institutions may have entered aggressively, leaving behind a “footprint” in the form of this gap.

Technically, an IFVG is formed when a three-candle sequence appears on the chart:

• The first candle shows price moving in one direction.

• The second candle sharply reverses and moves in the opposite direction.

• The third candle resumes the direction of the first but fails to fully retrace or overlap it.

The space between the first and third candles, particularly if there is no price overlap, forms the inverse fair value gap. This area is often marked as a potential support or resistance level, depending on the direction of the move.

Inverse Fair Value Gap vs. Fair Value Gap

While both the fair value gap (FVG) and the inverse fair value gap (IFVG) highlight price inefficiencies on the chart, they serve different purposes and reflect distinct market behaviors.

A fair value gap typically forms during an aggressive move, where a candle “skips” over a range of prices between two wicks, leaving an imbalance between buyers and sellers. This gap often acts as a magnet for price, drawing the market back to “rebalance” or fill the skipped zone. Traders frequently use FVGs as pullback areas, expecting price to return to these levels before continuing in the original direction.

By contrast, an inverse fair value gap doesn’t suggest a retracement. Instead, it highlights areas where price is unlikely to return immediately, signaling strength and momentum. While a regular FVG invites price back, the IFVG tends to reject price upon retest, reinforcing the current trend.

Key Differences:

Bullish IFVG vs. Bearish IFVG

A bullish IFVG forms during a strong upward move in the market. It reflects aggressive buying pressure, where price moves quickly and leaves behind an unfilled gap between two bullish candles.

Key Characteristics:

• Formed in an uptrend or during a breakout.

• Price rejects downward retracement at the gap zone.

• Signals continuation of bullish momentum.

• Acts as a support zone if price retests the area.

Trading Implication:

• Traders look to buy on retest of the bullish IFVG zone, expecting the market to continue upward.

• Works well with confluence from higher time frame structure or bullish order blocks.

A bearish IFVG, on the other hand, forms during a sharp downward move, showing strong selling interest. It marks a price range that was skipped over quickly as sellers dominated the move.

Key Characteristics:

• Formed in a downtrend or during a breakdown.
  Price rejects upward retracement at the gap zone.

• Signals continuation of bearish pressure.

• Acts as a resistance zone upon retest.

Trading Implication:

• Traders look to sell on retest of the bearish IFVG, targeting lower lows.

• Effective when combined with bearish market structure and liquidity sweeps.

How to Identify Inverse Fair Value Gaps

Identifying an Inverse Fair Value Gap (IFVG) involves spotting a specific three-candle pattern that signals a moment of strong momentum and institutional imbalance. Unlike regular gaps, which suggest a return to fill, inverse fair value gaps often indicate a continuation of price direction with limited retracement.

1. Start with a Clean Chart
   Use a clean price action chart without indicators. IFVGs are best seen on higher timeframes (1H, 4H, or Daily) where institutional moves are more visible.

2. Look for Strong, Impulsive Price Moves
   Focus on areas where price moves aggressively upward or downward without much pause. These moves often indicate that large orders have been executed.

3. Identify the 3-Candle Structure
   An IFVG typically forms over three consecutive candles:

   • Candle 1: Moves in the initial direction (e.g., bullish or bearish).

   • Candle 2: Temporarily pulls back or moves in the opposite direction.

   • Candle 3: Resumes the original direction but fails to fully overlap Candle 1’s wick.

4. For a Bullish IFVG:

   • Candle 1: Bullish

   • Candle 2: Bearish

   • Candle 3: Bullish and closes higher, without touching the low of Candle 1

5. For a Bearish IFVG:

   • Candle 1: Bearish

   • Candle 2: Bullish

   • Candle 3: Bearish and closes lower, without touching the high of Candle 1

6. Mark the Gap Zone
   Draw a box between the wick of Candle 1 and the wick of Candle 3. This untraded space is the inverse fair value gap. Price skipped this area due to strong buying or selling pressure.

7. Watch for Retests or Rejections
   Once marked, monitor how price reacts if it returns to this zone. IFVGs often serve as continuation zones, meaning price may bounce off them and continue in the original direction.

Role of Inverse Fair Value Gaps in Market Structure

Inverse fair value gaps (IFVGs) help traders understand where institutional momentum is driving the market. These gaps form during strong moves and often act as continuation zones rather than areas for price to return and fill.

In market structure, IFVGs typically appear after a break of structure (BOS) or change of character (CHOCH), confirming that price is likely to continue in the same direction. For example, a bullish IFVG after a bullish BOS reinforces the formation of higher lows. Similarly, a bearish IFVG supports lower highs in a downtrend.

Rather than attracting price, IFVGs tend to reject it, making them useful for spotting high-probability support or resistance zones within a trend. When combined with concepts like order blocks or liquidity sweeps, they add further confluence to directional bias and trade entries.

Inverse Fair Value Gap Trading Strategy

Inverse fair value gaps offer precise zones for trade entries when combined with market structure and momentum. Two main setups traders often use are trend continuation and rejection confirmation.

Setup #1: Trend Continuation

This strategy involves entering a trade in the direction of the prevailing trend after an IFVG has formed.

• Wait for a strong impulsive move that creates an IFVG.

• Monitor price as it returns to the gap zone.
  Enter the trade when price respects the IFVG without breaking below (in an uptrend) or above (in a downtrend).

Trade parameters:

• Entry: On retest of the IFVG zone.

• Stop loss: Just below the IFVG in a bullish setup, or above it in a bearish one.

• Take profit: Recent swing high (bullish) or swing low (bearish).

This setup works best when aligned with a confirmed break of structure and trend direction on the higher time frame.

Setup #2: Rejection Confirmation

In this approach, the focus is on how price reacts to the IFVG zone. Rather than entering immediately, traders look for clear signs of rejection.

• Wait for price to test the IFVG.

• Look for rejection signals such as:

  • Bearish or bullish engulfing candles
    Liquidity sweeps

  • Strong wick rejections or reversal patterns

This strategy becomes more powerful when combined with other tools like:

• Order blocks

• Breaker blocks

• Key support or resistance levels

Trade parameters:

• Entry: After rejection confirmation.

• Stop loss: Set stop-loss above or below the rejection wick.

• Take profit: Next major structure level or liquidity target.

Risk Management Considerations

As with any trading strategy, risk control is essential. Only risk a small percentage of your capital per trade, typically 1% or less. Ensure your risk-to-reward ratio is favorable (minimum 1:2), and avoid trading IFVGs in consolidation or ranging markets, where the concept loses its edge.

Common Mistakes to Avoid

While inverse fair value gaps can be highly effective, traders often misuse them by overlooking key conditions and context.

• Misidentifying Gaps: Not every price gap is an IFVG. Stick to the clear three-candle structure with strong momentum.

• Ignoring Market Context: Trading IFVGs without higher time frame confirmation or clear trend structure can lead to poor entries.

• Overtrading the Setup: IFVGs are powerful but should be used selectively, not on every chart appearance.

• Forcing Trades in Low Volume: Avoid using this strategy during slow sessions, such as during rollover or outside major market hours.

• Skipping Confirmation: Entering without a proper rejection signal or trend alignment increases the risk of false breakouts.

Conclusion

The inverse fair value gap offers a structured way to read momentum and price imbalance within a market. By understanding how these gaps form, how they differ from traditional fair value gaps, and how they interact with price structure, traders can enhance their ability to recognize trend continuation zones and refine their entry timing. When used with proper context, confluence, and risk management, IFVGs can serve as a reliable component of a disciplined trading approach.