Key takeaways
- An imbalance (FVG) is the gap between the high of the first candle and the low of the third (or the reverse) that price crossed with one wide candle.
- It shows that price moved through this range in one direction with little two-sided trading — the market “under-traded” the zone.
- Price often returns to an imbalance to rebalance the move. The key level is the middle of the gap (consequent encroachment).
- A meaningful imbalance appears after a liquidity sweep and in the direction of higher-timeframe context. The rest is noise.
What is an imbalance
An imbalance, or fair value gap (FVG), is a part of the chart where price moved in one direction so quickly that opposing trades barely had time to happen. Buying and selling in that zone were out of balance — hence the name.
In ICT terms this is called inefficient price delivery. The market tends towards efficiency, so the areas price “skipped” often remain targets for a later return, so that the algorithm can offer price in both directions.
How to spot an FVG on a chart
An imbalance is defined by three consecutive candles:
- Candle 1A normal candle before the move. What matters is its high (for a bullish FVG) or its low (for a bearish one).
- Candle 2The wide impulse candle that creates the gap.
- Candle 3The candle after the impulse. If its low is above the high of candle 1, a bullish FVG is left between them. For a bearish FVG, the high of candle 3 is below the low of candle 1.
The range between the wicks of the first and third candles is the imbalance. The wicks must not overlap; if they do, there is no gap.
Bullish and bearish imbalances
- Bullish FVG (in ICT terms, BISI — buyside imbalance, sellside inefficiency) forms during a move up. When price returns into it, buyers are expected to support it.
- Bearish FVG (SIBI — sellside imbalance, buyside inefficiency) forms during a move down. When price returns into it, sellers are expected to step in.
Also remember consequent encroachment (CE) — the midpoint of the imbalance. It is used to judge the strength of the reaction: if price closes beyond the middle of the gap, the imbalance is weaker than expected.
Types of gaps: FVG, volume imbalance, gap
Besides the classic FVG, Smart Money traders distinguish a few similar structures:
| Type | What it looks like | What to note |
|---|---|---|
| FVG | Wicks of candles 1 and 3 do not overlap | The basic form of imbalance |
| Volume imbalance | Wicks of adjacent candles overlap, but bodies do not | A small gap between bodies, often at the open |
| Gap | A space between one candle’s close and the next candle’s open | Typical for futures and stocks after weekends or overnight |
| Inversion FVG | An imbalance that price broke through and accepted beyond | Starts working in the opposite direction |
| BPR | A bullish and a bearish FVG overlapping in one area | A balanced range that price often reacts to |
Which imbalances are worth marking
Any chart has dozens of gaps. To avoid drowning in them, use filters:
- Imbalance after a liquidity sweep. If price ran the stops beyond a low or high before the impulse, the gap reflects a real change in intent.
- In the direction of context. A bullish FVG is interesting when the higher timeframe is drawing price up towards liquidity above the highs.
- Linked to a break of structure. A gap inside an impulse that broke a significant high or low matters more than a gap inside a range.
- From the right timeframe. FVGs on the daily and 4-hour charts are reference points for analysis; on lower timeframes they are a refinement tool.
- Formed during active hours. An imbalance created at a session open usually means more than a random gap during illiquid hours.
How imbalances and order blocks connect
Imbalances and order blocks are parts of the same picture. The order block shows where a position was built; the imbalance above it shows the move was aggressive and not random. That is why a strong order block is almost always “confirmed” by a gap in the impulse.
In practice price often returns to both zones in turn: first it fills the imbalance, then it tests the order block below. Understanding this sequence helps you avoid deciding too early.
Common mistakes
- Marking every gap. Without filters the chart turns into a pile of rectangles, and any of them can be made to “fit” an idea.
- Expecting every gap to fill. Price does not have to return to every imbalance. Strong moves often leave gaps open.
- Confusing an FVG with overlapping wicks. If the wicks of the first and third candles overlap, it is not an FVG.
- Ignoring the middle of the gap. A deep close beyond the CE is a sign the zone is weaker than it looked.
- Trading against higher-timeframe context. A bullish imbalance on the 1-minute chart against the daily direction is a weak basis for a decision.
Video breakdown
In this video I show in detail how I find imbalances, which gaps I discard and how I use them in my analysis. The video is in Russian; YouTube auto-translated subtitles are available.
More on the topic: market structure and trend breaks and liquidity sweep or break of structure — how to tell.
FAQ
Are an imbalance and an FVG the same thing?
They are often used interchangeably. Strictly speaking, a fair value gap is a specific type of imbalance: the gap between the wicks of the first and third candles. Volume imbalances and gaps are also called imbalances.
Does price always fill an imbalance?
No. Many gaps get filled over time, but it is not a rule. In a strong directional move price can travel far without returning to the imbalance, so you cannot count on every gap being filled.
What is consequent encroachment?
It is the middle of an imbalance — 50% of its range. Price’s reaction to this level is used to judge the zone: holding the midpoint supports the scenario, accepting beyond it argues against it.
Which timeframe is best for finding FVGs?
Zones for analysis usually come from higher timeframes — daily, 4-hour, hourly. On lower timeframes imbalances are used for refinement, for example to see a change in direction inside a higher-timeframe zone.
How is a Smart Money imbalance different from an order flow imbalance?
They are different things. In footprint or order flow analysis, an imbalance is a dominance of buy or sell volume at a specific price inside a candle. In Smart Money it is a price gap on an ordinary candlestick chart. Same word, different data.
Want to see this on a live chart?
On YouTube I show these concepts in real time, and on Telegram I post new breakdowns and materials. If you want the whole system, there is one-on-one mentorship.
This material is educational and is not investment advice or a trading signal. The diagrams are teaching illustrations, not real trades. Trading financial markets involves high risk; test any idea on historical data and a demo account before using it.