Inversion Fair Value Gap Oscillator

The Inversion Fair Value Gap Oscillator tool identifies and tracks Inversion Fair Value Gaps (IFVGs) in price action, presenting them in an oscillator format to reveal market momentum based on IFVG strength. By aggregating and decaying historical gap activity, it provides real-time insights into market sentiment and potential reversals.

Usage

The Usage section focuses on interpreting the oscillator's output for momentum and reversal trading.

• Momentum Tracking: The oscillator moves in bullish (positive) or bearish (negative) territory based on the intensity and frequency of recent IFVGs. A gray line represents the Net IFVG Oscillator, which can be used as a trend-following marker.
• Divergence Signals: The script automatically identifies divergences where price action and IFVG oscillations disagree.
  • Bullish Divergence: Occurs when price hits a 25-bar low while the Net Oscillator remains positive and the Bullish IFVG Oscillator is near its recent highs.
• Filtering: Users can apply ATR-based "Average Range" filters or "Volume Threshold" filters to isolate significant gaps and reduce market noise.

Details

Fair Value Gaps (FVGs) represent price inefficiencies typically filled during retracements. An Inversion Fair Value Gap (IFVG) is formed when an existing FVG is invalidated by price action moving through it in the opposite direction.

The oscillator is constructed using the following logic:

1. Initial Value: The oscillator starts at 0.
2. Contribution: When a new IFVG is detected, its width relative to the ATR is added to the respective bullish or bearish oscillator.
3. Decay: At every confirmed bar, the values are recalculated using a decay coefficient (OSC = OSC * (1 - Decay Coefficient)), ensuring that recent price action carries more weight than older data.

Settings

General Configuration

• Decay Coefficient: Controls the weight of historical vs. recent IFVGs. Higher values prioritize recent activity.
• Show Divergences: Toggles the visibility of divergence markers.
• Show IFVGs: Optionally displays the actual IFVG zones on the chart.

Fair Value Gaps

• Zone Invalidation: Determines if a gap is invalidated based on the Wick or the Close price.
• Zone Filtering: Choose between "Average Range" (ATR-based) or "Volume Threshold" to filter detected gaps.
• FVG Detection: "Same Type" requires all 3 bars forming the gap to be the same direction; "All" allows mixed bar types.
• Detection Sensitivity: Adjusts the size requirement for gaps (Extreme, High, Normal, Low).

Inversion Fair Value Gaps

• IFVG Zone Invalidation: Sets the price point (Wick or Close) that confirms the inversion of a gap.

FAQ

How do I interpret the gray line in the oscillator? The gray line represents the Net IFVG Oscillator, which nets out bullish and bearish strength to provide a single trend direction marker.

What does the Decay Coefficient do? It determines how quickly old IFVGs lose their influence on the oscillator. A higher decay makes the indicator more reactive to current price action.

How can I access the Inversion Fair Value Gap Oscillator? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.