An implied fair value gap (IFVG) is a concept introduced by ICT (Michael J. Huddleston) that refers to a specific type of fair value gap that may not be immediately obvious or visible in the price chart. Unlike a traditional fair value gap, which is a clear gap between two candles, an implied fair value gap involves overlapping wicks of consecutive candles without a distinct gap between their bodies.
Explanation of the Concept
An implied fair value gap occurs when the wicks of two consecutive candles overlap, but there is no clear gap between the bodies of these candles. This overlap creates an area of interest that can be used for trading decisions, even though it doesn’t look like a traditional fair value gap.
Why the Concept Works
The implied fair value gap works because it represents an area where there was a significant amount of trading activity, but not enough to create a clear gap. This area can act as a support or resistance level, similar to a traditional fair value gap.
Example from the Video
In the February 21, 2023, ES Opening Session Commentary, ICT explains that an implied fair value gap is identified by overlapping wicks of two candles. He notes that even though there is no clear gap between the bodies of these candles, the area between the wicks can be used as a reference point for trading decisions.
Tips for Using the Concept
Observation: Be vigilant in identifying these overlaps, as they may not be as obvious as traditional fair value gaps.
Context: Use the implied fair value gap in conjunction with other market analysis tools and concepts to strengthen your trading decisions.
Practice: Spend time practicing identifying these gaps in historical charts to get a better feel for how they form and how price reacts to them.
Caveats to Consider
Misidentification: Be cautious not to misidentify areas as implied fair value gaps. Ensure that the wicks of the candles overlap and that there is no clear gap between the bodies.
Market Conditions: Like all trading concepts, implied fair value gaps may not work in all market conditions. Always consider the broader market context.
By understanding and correctly identifying implied fair value gaps, traders can add another layer of analysis to their trading strategy, potentially improving their decision-making process.
