# Order blocks and fair value gaps: a strategy to learn and test | DT Academy

> ICT ideas: after a structure break, trade the return to an order block or gap.

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ICT

# Order blocks and fair value gaps

Taught by Michael J. Huddleston (ICT) and the wider Smart Money Concepts community. After a sharp move that breaks structure, traders look for the last opposite candle before it (the order block) and the gap the move left (the fair value gap), and trade price coming back into them. Definitions vary from teacher to teacher.

Advanced Forex, indices, gold London and New York M1, M5, M15, H1

[Use this strategy](https://www.thedtterminal.com/login?signup=true&from=academy&entry=strategy_use&redirect=%2Fjournal%2Facademy%2Fstrategies%2Forder_blocks_fvg) [Practice it](https://www.thedtterminal.com/login?signup=true&from=academy&entry=strategy_practice&redirect=%2Fjournal%2Facademy%2Fstrategies%2Forder_blocks_fvg)

Example 01

### Order blocks and fair value gaps on a chart

US100 · M5 FVG sweep, shift, return

Gap: 18,052.50 to 18,060.25Entry: 18,060.25Stop: 18,028.00Target: 18,135.25, prior highSample candles, not market data

The move up broke structure and left a gap. Price came back into the gap before carrying on. The stop sits under the order block.

### The rules

Setup Set a direction from the higher timeframe Wait for a sharp move (displacement) that breaks structure Mark the fair value gap the move left, and the order block: the last opposite candle before it

Entry Wait for price to come back into the gap or the order block, in the direction of the break Say where in it you enter: the near edge, the middle of the gap, or after a lower timeframe confirmation

Stop Just beyond the order block

Target The next liquidity: a prior high or low the move was heading for

Manage The sources leave management open: set your own

### Common mistakes

- Marking them in hindsight. Order blocks are easy to find after the move and hard before it.
- Expecting every gap to fill. Many gaps are never revisited.
- Shifting definitions. A rule that changes from trade to trade cannot be tested.
- One signal alone. The method is taught as several conditions together, not one.

### When it's off

- Call it off if price trades decisively through the order block (it becomes a breaker)
- Call it off if a candle closes through the far edge of the gap

### Words to know

Order block A bullish order block is the last down-close candle before a fast move up that breaks structure (a close through a prior swing high); a bearish one is the last up-close candle before a fast move down that breaks a prior swing low. Academy marks it from the candle's open to its far wick, and a candle body closing beyond that far edge is the usual invalidation.

Fair value gap A three-candle pattern where a strong middle candle leaves a space between the wicks of candles 1 and 3: bullish when candle 3's low is above candle 1's high, bearish when candle 3's high is below candle 1's low. Academy marks it wick to wick, and if those wicks touch or overlap there is no gap.

Displacement A strong, fast, wide-range, one-directional move, usually fast enough to leave a fair value gap. A slow, overlapping grind through a level does not count.

Break of structure A break beyond a swing point in the direction of the trend: in an uptrend, a close above the last high; in a downtrend, a close below the last low. It says the trend is carrying on, and Academy counts body closes, not wicks.

Market structure shift The first break against the trend: in an uptrend, a candle body closing below the last higher low (the low that launched the latest high). The ICT course requires displacement, a fast move that usually leaves a fair value gap; a wick through that closes back is a rejection, not a shift.

Liquidity Orders already waiting at a price, many of them thought to be stop losses and breakout orders. Buy-side liquidity rests above swing highs, sell-side liquidity below swing lows.

Consequent encroachment The 50% line of a fair value gap, (top + bottom) / 2. ICT reads it on candle bodies: held if no body closes beyond it, weakened if a body closes beyond it but inside the gap, invalid once a body closes beyond the gap's far edge.

Breaker block A failed order block where price swept liquidity first. Bullish: a lower low takes the sell-side liquidity under an old low, then price closes above the prior swing high, and the last up-close candle before that low is watched as support on the retest (bearish is the mirror).

When you make it yours, I'll ask what the rules above leave open. Start with one of these:

- What is your exact order block: the body or the wick, one candle or several?
- What counts as displacement and a structure break: a close beyond the level, a minimum size?
- When there are several gaps or blocks, which one do you trade?

[Ask Edge in DT Terminal](https://www.thedtterminal.com/login?signup=true&from=academy&entry=strategy_question&redirect=%2Fjournal%2Facademy%2Fstrategies%2Forder_blocks_fvg)

## From DT Academy

- [Identifying fair value gaps](https://www.thedtterminal.com/academy/fair-value-gaps)
- [Liquidity](https://www.thedtterminal.com/academy/liquidity)
- [Market structure](https://www.thedtterminal.com/academy/market-structure)

## What testing exists

No independent or peer-reviewed test of order blocks or fair value gaps was found. The sources describe the method as discretionary.

## Before you trust a backtest

- Many professional traders risk under 1% of their account on one trade idea, and the common guideline is 1 to 2%.
- The more versions of a rule you try on the same data, the more likely a good backtest is luck. Decide your rules before you test.
- Include spread and commission, and practice on dates you have not looked at, before you trust a result.

## Sources

- [Smart money concept explained (opens in a new tab)](https://www.cmcmarkets.com/en-gb/trading-strategies/smart-money-concept), CMC Markets
- [ICT trading concepts (opens in a new tab)](https://fxopen.com/blog/en/what-are-the-inner-circle-trading-concepts/), FXOpen
- [Order blocks and breaker blocks (opens in a new tab)](https://fxopen.com/blog/en/order-blocks-and-breaker-blocks-and-how-to-trade-them/), FXOpen
- [Imbalance trading in forex (opens in a new tab)](https://fxopen.com/blog/en/what-order-imbalance-is-and-how-to-use-it-in-a-trading-strategy/), FXOpen
- [Controlling risk (opens in a new tab)](https://www.ig.com/en/ig-academy/money-management/controlling-risk), IG Academy
- [Forex risk management (opens in a new tab)](https://www.cmcmarkets.com/en-gb/forex/forex-risk-management), CMC Markets
- [Pseudo-mathematics and financial charlatanism (Notices of the AMS, 2014) (opens in a new tab)](https://scholarworks.wmich.edu/math_pubs/40/), Bailey, Borwein, López de Prado and Zhu
- [What is backtesting? (opens in a new tab)](https://www.ig.com/uk/trading-strategies/what-is-backtesting-and-how-do-you-backtest-a-trading-strategy--220426), IG

DT Academy is education, not financial advice. Nothing here is a recommendation to buy or sell any instrument. Trading carries a high risk of losing money, and past results, examples and backtests do not guarantee future results. [Risk disclosure](https://www.thedtterminal.com/risk-disclosure)

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