Fair Value Gap (FVG) Trading in MT5: Consequent Encroachment and True Invalidation
How institutional algorithms deliver price through 3-candle imbalances and the mathematical criteria for valid FVG mitigation versus complete structure failure.
1. What Causes a Fair Value Gap at the Algorithmic Level?
An FVG is not an arbitrary pattern; it is an inefficiency caused by high-volume unidirectional market aggression. When Candle 2 expands aggressively, Candle 1's high and Candle 3's low do not overlap. The central area was only offered to buyers (or sellers), leaving the order book unbalanced.
2. Consequent Encroachment (50% CE) as the Algorithmic Anchor
The 50% midpoint of a Fair Value Gap is termed Consequent Encroachment (CE). If candle bodies close beyond 50% CE, the imbalance is mathematically considered balanced. If a subsequent candle closes entirely outside the gap, the zone is invalidated and flips into an Inversion FVG.
3. Eliminating Low-Probability Gaps With Volume Filtering
Not all 1-minute FVGs deserve your capital. High-probability gaps only occur after sweeping previous session liquidity (Asian High/Low, Previous Day High/Low) during the London or New York open macro window.
Automate FVG identification with MT5 indicators that calculate exact 50% CE coordinates and alert you only when institutional displacement is verified.