Inversion Fair Value Gaps (IFVG) Explained
An Inversion Fair Value Gap (IFVG) is a trading concept used by price action traders (also known as SMC or ICT traders). An IFVG can be used as an indication of a price reversal, or as an area for taking trade entries or profits in an open trade. A bullish IFVG will be used to take long entries, while a bearish IFVG will be used to take short entries.
What is an Inversion Fair Value Gap (IFVG)?
An inversion fair value gap is formed when a fair value gap is invalidated, by a candle wick or close. These areas can indicate a shift in the market’s momentum, indicating a potential reversal in the market’s trend.
If you’re not familiar with the concept of Fair Value Gaps (FVG), you can learn about what they are and how to spot them here. It’s critical to understand the concept of FVGs before you learn about IFVGs.
How to Identify an IFVG
Bullish IFVG
A bullish IFVG is found by locating a bearish Fair Value Gap (FVG). Once the bearish FVG is invalidated or broken, by a wick or candle close, it is now considered a bullish IFVG.
When price comes back to a bullish IFVG, you can use the zone as an area for potential long trade entries. If price rises past the bottom of the bullish IFVG zone, it is invalid and should no longer be used.
Bearish IFVG
A bearish IFVG is found by locating a bullish Fair Value Gap (FVG). Once the bullish FVG is invalidated or broken, by a wick or candle close, it is now considered a bearish IFVG.
When price comes back to a bearish IFVG, you can use the zone as an area for potential short trade entries. If price rises past the top of the bearish IFVG zone, it is invalid and should no longer be used.
Trading Strategy with Inversion Fair Value Gaps
One of the most popular strategies using IFVGs involves using liquidity grabs. The strategy is simple to follow and was popularized by the Twitter user @DodgysDD. For this strategy, you will wait for a liquidity grab, followed by a formation of an IFVG. Once the IFVG is formed, either by a candle wick or close, you will enter your position. You can set your stop loss below the IFVG, and take your profit at a 1:2 risk-to-reward ratio.
In this trade, a bullish liquidity grab was detected by the Liquidity Grabs indicator by Flux Charts. A few minutes later, price shot up, invalidating the bearish FVG and forming a bullish IFVG. Once the IFVG is formed, you can set your stop loss below the IFVG and take a 1:2 risk-to-reward trade.
The indicators used in this trade:
Inversion Fair Value Gaps | Flux Charts
What is the best timeframe to trade Inversion Fair Value Gaps on?
Inversion Fair Value Gaps work on all timeframes depending on your trading style (scalping, day trading, swing trading, investing). However, in trading there’s a general rule that higher timeframes are more consistent and reliable than lower time frames. It's best to use multiple timeframes when making your trading decisions so you have a bigger picture look at the market.
What is the difference between a Fair Value Gap and an Inversion Fair Value Gap?
Fair Value Gaps (FVG) are market imbalances formed by a three candle pattern, where the first and third candle wicks fail to overlap the second candle's body. The range between the wicks highlight a FVG. An Inversion Fair Value Gap (IFVG) is formed when the FVG is invalidated by either a candle wick or close.
How do you avoid bad trades with Inversion Fair Value Gaps?
The best way to have consistent results when trading Inversion Fair Value Gaps (IFVG) is to trade with confluence. You shouldn't enter a trade just because price is retesting an IFVG. You should have other forms of confluence to enter the trade such as a Liquidity Grab, Breaker Block, or confirmation of the market trend.