Fair Value Gap, Order Block, Breaker Block

Introduction

Once you understand structure and liquidity you need precise tools for marking the places where imbalance sits. Fair Value Gap (FVG), Order Block (OB) and Breaker Block (BB) are the three most widely used concepts in modern Price Action. All of them rest on the same idea: the market left a trace of aggression that it never tested.

Misusing these tools ends with 20 zones on the chart and a trade on every one of them. Using them correctly is selection: only the FVG/OB that formed in logical places (after a liquidity sweep, at a BOS) and have confluence with HTF structure.

Fair Value Gap (FVG) – the fair value gap

An FVG is a three-candle formation that shows imbalance.

Bullish FVG: The middle candle is a bullish impulse; its low sits above the high of the first candle, and the high of the first below the low of the third. A gap forms that was never tested.

Bearish FVG: The reverse – the middle candle is bearish, its high below the low of the first.

Bullish FVG - condition:
High[2] < Low[1] ? No, the ICT definition:
Low[1] > High[3] ? Simpler Price Action definition:
FVG Top = Low of candle 1
FVG Bottom = High of candle 3
Gap = Low[1] - High[3] > 0 → a bullish FVG exists

Bearish FVG:
High[3] < Low[1] ?
FVG Top = Low[3]
FVG Bottom = High[1]

In practice: you look at 3 candles. If the middle one is large and leaves a gap between the wicks of the outer candles – that is an FVG.

How do you trade an FVG?

• Entry: Price returns to 50% of the FVG or to the whole zone.
• Invalidation: A close outside the FVG on the opposite side (for a bullish FVG, below the FVG floor).
• Context: The best FVGs formed after a BOS or after a sweep. An FVG in the middle of chop has no value.

Myth: Price always has to fill an FVG. It does not. Measure it. In your market only a certain % of FVGs are filled within X candles. The rest is observation, not a trade.

Order Block (OB) – the last candle before the impulse

An Order Block is a more precise version of a demand/supply zone.

Bullish Order Block: The last bearish candle before a strong upward impulse that produced a BOS. This is where sellers were closed out and institutional buyers entered.

Bearish Order Block: The last bullish candle before a strong downward impulse with a BOS.

Order Block conditions (working definition):
1. A strong impulse > 1.5 ATR, closing beyond the previous major high/low (BOS)
2. The OB is the last opposite candle before the impulse
3. The OB cannot be fully tested by the wick of the impulse (at least 50% untouched)

Bullish OB:
OB High = High of the last bearish candle
OB Low = Low of the last bearish candle
It often narrows to 50% of the body (the so-called OB 50% refinement)

Bullish vs Bearish OB – the nuances

• A bullish OB matters: when it formed after a sweep of SSL (EQL) and produces a BOS. It often starts a new trend.
• A bearish OB matters: when it formed after a sweep of BSL.
• An OB is not sacred: if price spends >5 candles inside the OB without a reaction, it loses validity.

OB and FVG compared

OB and FVG often overlap – that is confluence (an FVG inside an OB). Such places have a statistically higher priority.

Breaker Block (BB) – a broken Order Block

A Breaker Block is a former Order Block that was broken and now acts as the opposite zone.

Bullish Breaker: It used to be a bearish OB that was broken upward (BOS). After the break, when price returns, it acts as support (bullish breaker).

Bearish Breaker: It used to be a bullish OB broken downward; it returns as resistance.

How a Breaker Block forms:
1. A Bearish OB exists
2. Price makes a Bullish BOS by closing above the Bearish OB High
3. The Bearish OB is no longer resistance - it becomes a Bullish Breaker Block

Condition:
Close > Bearish OB High + buffer
A return to the Breaker = a potential long entry (if other confluences confirm)

Why does it work? Because the traders who sold at the bearish OB were run over. Their stop losses fuel the upward move. When price comes back, those who missed the move want in, and those who were run over no longer want to sell.

Selection protocol: which block do you trade?

On a chart you will have 10 FVGs, 8 OBs and 5 BBs. Which one do you pick?

A 3-level filter:

Level 1 – HTF context: Is the block in line with the HTF trend or inside an HTF Demand/Supply zone? If not, reject.

Level 2 – Liquidity history: Did the impulse that created the block sweep BSL/SSL beforehand? If so, +1 point.

Level 3 – Freshness and intactness: Is the block fresh and unfilled? Has it gone untouched since it formed? Fresh = +1, used = 0, broken through = -1.

Trade only blocks scoring >=2.

Quality Score OB/FVG/BB:

Q = (HTF alignment ? 1 : 0) + (Sweep before ? 1 : 0) + (Fresh ? 1 : 0) + (Impulse BOS ? 1 : 0)

Q 0-1: ignore
Q 2: watch, wait for LTF confirmation
Q 3-4: a high-quality setup for LTF confirmation

You log this score in your journal.

When the plan says do not trade

1. When the FVG/OB/BB is wide, >1.2 ATR: Your stop will be too big. The math is against you. Look for narrower formations or a 50% refinement.
2. When the block formed in a low-liquidity session and you trade London/New York: A block from Asia without an impulse has little value. Look for blocks from high-volume sessions.
3. When you have 3 different blocks within <0.3 ATR: That is zone chaos. Wait until the market picks one. An overlapping FVG+OB is confluence, but 5 stacked on top of each other is noise.
4. When price has already filled an FVG twice and bounced, and you want a third time: Spent imbalance. The odds it fails grow with every test.
5. When the FVG/OB is against the HTF BOS: An example: the HTF is in a strong downtrend and you want to long a bullish FVG on H1 because it “looks nice”. That is fighting the trend for no reason. You need an HTF CHOCH.

The mistakes that cost the most

1. Drawing every FVG. On H1 you get 1-2 worthwhile FVGs a day. If you mark 15, your chart is a rainbow without an edge. Filter by ATR.
2. A limit entry in an OB without LTF confirmation. An OB is an area, not a signal. Wait for an LTF CHOCH + BOS inside the OB. Otherwise you get run over.
3. Confusing a Breaker Block with an ordinary S/R flip. A breaker must first be identified as an OB and broken by an impulse. Not every flip is a breaker.
4. No invalidation. An FVG has a floor and a ceiling. If price closes outside it, the idea is wrong. Holding a position “because it will come back to the FVG” is not a plan.
5. Using an M1 OB on H4 as a target. A lower timeframe carries less weight. Sensible confluence: an HTF zone + an LTF OB/FVG inside it. An M1 OB alone will not stop an H4 trend.

Measurable exercise

Task: a block library

1. Pick 1 market, H1, the last 100 candles.
2. Mark every Bullish/Bearish FVG >0.4 ATR.
3. Mark every OB that produced a BOS.
4. For each one calculate the Q Score (0-4).
5. Check the first return:

Metrics after 30 blocks:
% of FVGs filled within 20 candles (fill rate)
% of blocks with Q>=3 that give 1R vs Q≤1
Average R-multiple for Q>=3
The optimal entry method: 50% of the zone vs the edge of the zone (compare)

The goal is to find your own Q threshold and entry method.

Test yourself

1. Define a bullish FVG on 3 candles. What must it satisfy?
2. How does an Order Block differ from a demand zone?
3. Describe how a bullish Breaker Block forms. What are the two conditions?
4. You have an overlapping Bearish FVG and Bearish OB with Q=4. Where do you place the stop, and why behind the zone rather than inside it?
5. Why is an FVG formed in the middle of consolidation weak?

Frequently asked questions

Does an FVG always have to be filled to 50%? No. The statistics show that different markets fill differently. Some react at the edge of the FVG, others trade deeper into it. That is why you measure your own market. In your plan write down: “I enter at 50% of the FVG” or “I wait for a retest of the whole FVG + LTF confirmation” and stick to it.

Order Block on a line chart or a candlestick chart? Always a candlestick chart. You need to see the bearish/bullish candle and its range; on a line chart you will not see an OB.

Is a Breaker Block the same as a market structure shift? A breaker is a consequence of the shift. A market structure shift is the CHOCH/BOS that breaks the OB; a breaker is the zone that changes polarity after it.

Can I trade only FVG/OB without the rest? You can, but without the context of structure and liquidity you will trade them in the wrong places. The course is built sequentially: structure -> zone -> liquidity -> blocks -> entry. Skipping a step lowers EV.

What if the OB and the FVG contradict each other (one says long, the other short in the same place)? Do not trade. It means consolidation and stacked orders from both sides. Wait for the BOS that decides which block takes control.

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