A Fair Value Gap is a three-candle pattern where the wicks of candle 1 and candle 3 do not overlap, creating an imbalance or gap in price. FVGs represent areas where price moved so aggressively that there was insufficient opposite-side liquidity. Price tends to retrace into FVGs before continuing, making them excellent entry zones.
Three-candle pattern with a gap between candle 1 wick and candle 3 wick, Bullish FVG: gap above between candle 1 high and candle 3 low. Bearish FVG: gap below between candle 1 low and candle 3 high. Consequent encroachment: 50% of the FVG. Inversion FVGs: when a filled FVG acts as S/R.
Price pulls back into an unfilled FVG in the direction of the trend, Entry at the premium/discount edge of the FVG (or 50% CE level), FVG in confluence with an order block, HTF FVG with LTF confirmation entry
Stop beyond the FVG boundary, Target the next liquidity pool or OB, Partial fill: if price fills only 50%, it may continue from CE
FVGs appear on all timeframes; 1H/4H FVGs are most tradable, 15M for entries
The most powerful FVGs are those aligned with the prevailing trend on a higher timeframe. FVGs against the trend are more likely to be fully filled and invalidated.
Inducement is a Smart Money Concept describing the deliberate engineering of liquidity pools by institutional traders to attract retail orders before reversing price. Inducement patterns occur when price creates minor highs or lows that entice retail traders to enter positions or place stops, providing the liquidity that smart money needs to fill large orders in the opposite direction.
Kill zones are specific time windows during the trading day when institutional activity peaks and the most significant moves occur. ICT identifies four main kill zones: Asian session (20:00–00:00 ET), London Open (02:00–05:00 ET), New York Open (07:00–10:00 ET), and London Close (10:00–12:00 ET). Trading only during kill zones improves probability.
Mitigation blocks are price levels where institutional traders return to 'mitigate' or close out prior losing positions before continuing in the new trend direction. When smart money takes a position that initially moves against them, they mark the level for re-entry — when price returns, they close the losing trade at break-even and add to their new directional position. This creates a powerful support or resistance zone.
Premium and Discount zones divide the current price range (from the swing low to swing high) into halves using the equilibrium (50%) level. Discount = below 50% (cheap, look to buy). Premium = above 50% (expensive, look to sell). This concept ensures traders are buying low and selling high relative to the current range.