Consequent encroachment in gold trading

Consequent encroachment (CE) is ICT’s name for the midpoint of a fair value gap. The term is also applied to the midpoint of a long wick. The idea is that a gap is respected if price trades into it but does not close beyond its midpoint, and weakened if it does.

How it applies to gold trading

Gold fair value gaps can be several dollars wide, which makes the entry and stop decision important. Traders use the CE level in three ways. As an entry: a limit order at the midpoint instead of the gap’s edge, giving a better price. As a test: if a candle closes beyond the CE, the gap is considered weak and may fail. As a stop reference: some traders place stops just beyond the far edge of the gap, others just beyond the CE for tighter risk.

The midpoint is a convention, not a magic level. It is most useful as a consistent rule for judging whether a gap held.

Worked example

Example (hypothetical numbers): a bullish FVG spans 4,004 to 4,012, so the CE is 4,008. Gold pulls back to 4,009, wicks to 4,007.50, and closes at 4,010. The gap held its midpoint on a closing basis. A trader with a buy limit at 4,008 and a stop at 4,002.50 risks $5.50 and targets 4,030.

A common mistake

Placing the stop exactly at the CE. Wicks through the midpoint are common; the close is what matters to the rule.

See also: Fair value gap, Imbalance, OTE, Premium and discount.

Frequently asked questions