1
3-Candle Imbalance Mechanics
An FVG is created when institutional market orders aggressively push price through the order book:
- Candle 1: Preceding reference bar (its High or Low defines the starting gap boundary).
- Candle 2: Explosive displacement bar leaving single-sided institutional volume.
- Candle 3: Confirmation bar whose wick fails to overlap Candle 1, creating an open auction vacuum.
Why it works: Market auctions naturally seek two-sided balance. The unfilled gap acts as a price magnet.
2
Consequent Encroachment (C.E.)
The 50% midpoint of the Fair Value Gap is known as Consequent Encroachment (C.E.):
- Pristine Defense: Strong institutional trends only dip to the upper edge or 50% midpoint before violently bouncing.
- Rejection Wick Quality: The bounce candle must form at least a 20%–35% wick, proving buyers/sellers stepped in aggressively.
- Body Preservation: The body of the retesting candle should close inside or outside the gap, never violating the far boundary.
Fibonacci Synergy: When the C.E. level coincides with the 62%–79% OTE zone, win-rate escalates significantly.
3
Structural Invalidation & Delivery
Unlike retail indicators that use arbitrary stop losses, FVG entries have objective structural invalidations:
- Strict SL Placement: Fixed exactly 3.0 points beyond the opposing edge of the FVG.
- Tight Risk Budget: Stop loss distance is typically 12.0–22.0 points on NIFTY, well below the 35.0-pt risk ceiling.
- Expansion Targets: +1.5R (T1 partial scale), +3.0R (T2 runner trail), and +5.0R (T3 opposing swing pool target).
Asymmetry: Risking ₹900–₹1,500 per lot to capture ₹3,500–₹7,000+ per lot in rapid momentum expansion.