Fair Value Gap & Gap Profile

The Fair Value Gap & Gap Profile indicator identifies market imbalances and visualizes the historical distribution of these gaps to help traders spot high-probability support and resistance zones.

Usage

The indicator can be used to identify entry and exit points based on market inefficiencies. Traders can use the visual boxes to see where price may return to fill an imbalance before continuing its primary trend.

• Gap Trading: When a bullish FVG is formed, it acts as a potential support zone. Conversely, bearish FVGs act as resistance.
• Liquidity Interaction: The tool plots markers (dots) when price interacts with existing gap levels, signaling potential "liquidity grabs" or retests of the gap boundary.
• Historical Analysis: By enabling "Show Filled Gaps," traders can see how price reacted to previous imbalances and whether those levels continue to influence current price action.
• Volume Intensity: The color intensity of the FVG boxes reflects the relative volume strength of the move that created the gap, helping to distinguish between minor imbalances and significant market shifts.

Details

Fair Value Gaps (FVGs) occur when there is a significant imbalance between buying and selling pressure, resulting in a three-candle sequence where the first and third candles do not overlap. This script enhances standard FVG detection by including a "Gap Profile."

The Gap Profile acts similarly to a Volume Profile but focuses on the frequency of gaps. It aggregates the occurrences of imbalances across a specific lookback period and projects a histogram on the right side of the chart. High peaks in the Gap Profile indicate price levels where imbalances frequently occur, often suggesting zones of low resistance where price may move more fluidly.

Settings

Main Settings

• Gap Extend Length: Sets how many bars forward the FVG box is extended from its point of origin.
• Gap Filter Length / ON/OFF: Allows users to filter for "significant" gaps based on candle body size relative to a lookback period.

Plot

• Show Filled Gaps: Displays boxes for gaps that have already been mitigated or filled by price.
• Show Filled Gaps Levels: Toggles the visibility of horizontal levels for filled gaps.
• Show Gap Profile: Enables the historical distribution histogram on the chart.
• Color ⭡ / Color 🠗: Customizes the colors for bullish and bearish fair value gaps.

FAQ

How do I use the Gap Profile?

The Gap Profile shows areas where gaps have frequently occurred. High points on this profile represent zones where price often moves quickly due to low resistance, which can be useful for identifying potential breakout targets.

What do the dots on the chart represent?

The dots represent "Liquidity Collection" signals, which occur when the current price interacts with the boundaries of a detected Fair Value Gap.

How can I access this tool?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.