FVG Channel

The FVG Channel indicator is a powerful technical analysis tool used to identify trends and potential price reversals in financial markets by examining unmitigated fair value gaps (FVGs). By calculating a channel based on the averages of these historical FVGs, traders can detect key market movements with greater confidence.

Traders have the flexibility to adjust settings to define the number of FVGs involved in the channel calculation, as well as modify the smoothness of the resulting channel to suit their trading strategy.

How to Trade with the FVG Channel Indicator

The FVG Channel is meticulously constructed by averaging recent unmitigated Bullish and Bearish FVGs. Bullish FVGs help form the upper bands, while Bearish FVGs contribute to the lower bands. This evaluation uses a user-defined lookback period, allowing traders to tailor the indicator for long-term or short-term market analysis.

The indicator features five distinct bands, with two outer bands and three inner bands derived from Fibonacci ratios (namely 0.786, 0.5, and 0.236) of the outer bands. An uptrend is typically identified when the price remains above the inner upper band (triggered by the 0.786 ratio). This band also acts as dynamic support during price retracements in an uptrend.

If the price dips below the inner upper band and fails to recover, it could signal market uncertainty, culminating in potential consolidation or reversal. This same principle applies to downtrends as shown in the examples below.

Uptrend Example:

Downtrend Example:

Exploring Breakout Levels

The concept of "Breakout Levels" becomes crucial when the price mitigates all FVGs in one direction, save for one. This level is pivotal as it must be crossed for all FVGs in that direction to be mitigated, often referred to as "Last Stand Levels".

These levels hold weight as potential support and resistance points; however, one must watch for breakouts as a considerable push beyond these points can reflect robust market momentum.

Interpreting Signals

The indicator provides Bullish and Bearish signals, triggering when all FVGs on one side are mitigated, paired with an opposite direction engulfing candle. These reversal signals should be integrated with other indicators to balance risk effectively.

Note: Once all FVGs in a particular direction are mitigated, candle colors change to indicate this shift.

Comprehensive Indicator Details

This script employs a systematic approach to FVG identification. The subsequent data gathering stores mitigation levels for bullish and bearish FVGs respectively:

• Bullish FVGs: Mitigation level captured at the bottom.
• Bearish FVGs: Mitigation level captured at the top.

Through a specified "Unmitigated FVG Lookback," the data is purged to retain only a set number of mitigation levels, making room for new FVGs by eliminating older data once mitigated.

The channel’s upper and lower boundaries emerge from two calculated steps—an initial average of FVG mitigation levels and subsequent smoothing via a simple moving average (SMA).

Note: To observe the first-step averages, adjust the "Smoothing Length" to 1.

Indicator Settings Explained

• Unmitigated FVG Lookback: Determines the maximum number of unmitigated FVG levels considered in channel calculation.
• Smoothing Length: Adjusts the smoothing intensity for the channel, filtering out noise from the raw data.

FAQ

How do I access the FVG Channel Indicator?

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

What markets can I use the FVG Channel Indicator for?

The FVG Channel Indicator is versatile and can be applied to any market, including forex, stocks, commodities, and cryptocurrencies, helping identify pivotal market trends and potential reversals.