Easy FVG Trading Strategy

Easy ICT FVG Strategy

January 02, 2025

Dear Traders

Fair value gaps (FVGs) are concepts frequently referenced by price action traders, who may also describe them as liquidity voids, imbalances, or inefficiencies. These gaps occur when there is intense buying and selling pressure that leads to rapid and substantial price fluctuations. Such market movements, whether bullish or bearish, create gaps that are central to the FVG strategy. The underlying principle of FVGs is the belief that the market will eventually correct itself.

Understanding Fair Value Gaps

The FVG concept relies on a specific three-candlestick pattern that results in an imbalance in market price movement. Unlike other gaps on a price chart that show no trading activity, an FVG is defined by the space between the wicks of the first and last candles during a significant price shift—either upward or downward.

How to trade with Fair Value Gaps

To effectively trade using fair value gaps, you need to recognize when and where to enter and exit trades. Below is a structured approach to applying the FVG trading technique:

1. Identify the Trend 

Utilize longer time frames such as 1-hour, daily, or weekly charts. Trend lines and channels can assist in determining the market's direction.

2. Determine Supply and Demand Zones

After identifying the trend, locate supply and demand zones or order blocks that align with it. The initial candle of the FVG formation can be used to draw these zones.

3. Locate Entry Points Using FVG 

Understand how the fair value gap was created. Tools like Lux Algo's Fair Value Gap Indicator on TradingView can help automatically identify FVGs. For instance, look for bearish supply zones adjacent to an FVG; consider short selling when the price closes this gap.

4. Set Target Profit and Stop Loss 

Effective risk management is essential in any trading strategy. Establish realistic target profit and stop loss levels when trading FVGs. If entering from a supply zone, position your stop loss above the first candle of the three-candle FVG formation to safeguard your capital against unfavorable market movements. Set your take-profit target above the next demand zone in your trade direction, which indicates a potential market reversal where you can secure profits.

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