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Strategy Playbooks
Smart Money · Intermediate

Fair Value Gap Retest

Trade the return to an imbalance left by aggressive orders.

Backtest this playbook
Origin: Three-candle imbalance concept popularised by ICT
Session
09:30–11:30 ET
Timeframes
5m execution, 1h bias
Markets
NQ / MNQ, ES / MES, Major FX pairs
Reward
2R fixed
Illustration
105.0107.5110.009:3010:0010:3011:00Stop 110.5Target 2R 105.1Bearish FVGDisplacementShort 108.7
Bearish example. Candle 1’s low (109.6) and candle 3’s high (108.7) leave a 0.9-point gap. Price rallies into it at 10:30 and fills a short at 108.7, with the stop above candle 1 at 110.5. The 2R objective at 105.1 is reached 35 minutes later.

Why it works

When one side of the market overwhelms the other, price leaves a gap that only traded in one direction. Price often returns to that inefficiency before continuing. This playbook takes the return in the direction of the original displacement, during the most liquid part of the New York morning.

The rules

01Setup

  • Displacement: a candle larger than 1× ATR that breaks a recent swing.
  • Bearish gap: candle 3’s high is below candle 1’s low. The gap is the space between them (mirror for longs).
  • Ignore gaps smaller than 0.2× ATR — they are noise.

02Entry

  • Limit order at the proximal edge — candle 3’s high for shorts — or at the 50% level.
  • Keep the order live for 12 bars, then cancel it.
  • Only between 09:30 and 11:30 ET.

03Stop

  • Beyond candle 1 — above its high for shorts. If price trades there, the imbalance has failed.

04Target

  • A fixed 2R. Do not move it.

05Management

  • Moving the stop to break-even at 1R is optional. Test it in the backtester first — it often lowers expectancy.

06Invalidation

  • A candle closes beyond the far edge of the gap before entry.
  • The order expires unfilled.

Common mistakes

  • Trading every gap — most intraday gaps are noise without displacement
  • Chasing at market as price approaches instead of resting a limit
  • Forgetting that unfiltered gap retests are close to break-even after costs — the filters are the edge

Educational material, not financial advice. The illustration is a sketch of the rules, not a historical trade. Results in the backtester are hypothetical and do not guarantee future performance.