When a fair value gap fails: trading inversions

What flips it

A fair value gap is supposed to hold on the first return — that's what tells me the displacement that created it is still in control. When price doesn't hold it and closes all the way through instead, the gap flips. It stops being a level that should support the old direction and becomes one I expect to reject price in the new direction. I call that an inversion fair value gap, or IFVG. Same space on the chart, opposite job.

This is the same idea as a breaker, just applied to a gap instead of a candle. A level failing to do what it was supposed to do is information. I don't throw that information away because the original read didn't work — I flip the level and keep using it. The gap doesn't disappear off the chart just because the first idea attached to it was wrong.

Close-through, not wick-through

The distinction that matters is close versus wick. A wick into or through a fair value gap is price testing the level and getting rejected — the gap held, nothing flips. A close through it, candle body fully past the range, means the level failed. That close is the only thing that turns a fair value gap into an inversion. I've watched setups get ruined by traders calling an inversion off a long wick that never actually closed through. The wick is the market probing. The close is the market deciding.

I wait for the candle to finish. No entering on the wick because it looks like it's about to close through — either it does or it doesn't, and I only act once I know which.

Using it after a sweep

The IFVG setup I trade almost always sits downstream of a sweep. Price runs a high or low, takes the resting liquidity there, and reverses through a fair value gap left behind on the way to that sweep. The close through that gap is my confirmation that the sweep wasn't just a wick and a bounce — it's an actual reversal with displacement behind it. I want the sweep first, then the close through the gap, in that order. A close through a gap with no sweep behind it is just continuation of whatever was already happening, and I'm not treating that as a reversal signal.

Once I have both, I'm looking for price to return into the inverted gap and hold before I enter, same as any other level — I don't chase the close-through candle itself. On MNQ that often means a sweep of the overnight low, a displacement higher through a gap sitting just above it, then a pullback into that same gap before the move I actually want to be in gets going. The stop goes on the far side of the inverted gap, which keeps the risk small relative to how far the reversal has already traveled.

Invalidation

An inversion fails the same way it formed: a close back through it. If I'm long off an inverted gap and price closes back below it, the level didn't hold in its new role either, and I'm out. No holding through that close hoping it was a fakeout — the close-through rule that created the setup is the same rule that kills it.

That symmetry is the point. I'm not inventing a new standard for when to exit versus when to enter. Whatever proved the level flipped once is what proves it flipped again, and I don't need a second opinion on a rule I already trust.