Fair Value Gap

The Fair Value Gap indicator identifies and visualizes market gaps where price action has left a void, highlighting potential areas of liquidity and interest for traders.

Usage

The Fair Value Gap indicator can be used to spot institutional footprints on a chart. Bullish gaps (green) and bearish gaps (red) are automatically plotted when a significant price imbalance occurs between the current candle and the candle two bars prior.

Traders can utilize these zones in several ways:

• Liquidity Zones: Use the highlighted areas as potential entry points where orders may still be residing.
• Support & Resistance: Gaps often act as dynamic levels. By adjusting the invalidation settings, users can keep these zones on the chart to see how price reacts to them even after an initial breakout.
• Gap Filling: Monitor the "Gap Fill" logic to see when an imbalance has been corrected by subsequent price action.

Details

Fair Value Gaps (FVG) are a core concept in price action analysis, representing a three-candle sequence where the wick of the first candle and the wick of the third candle do not overlap. This lack of overlap creates a "gap" in the middle candle's range. This tool automates the detection of these imbalances and manages their lifecycle based on user-defined invalidation criteria, such as price closure or the number of bars elapsed.

Settings

Invalidation Settings

• Invalidation Outcome: Determines whether a gap is deleted from the chart or simply stops updating once it meets invalidation criteria.
• Invalidation Method: Selects the logic used to expire a gap:
  • Gap Fill: The zone shrinks as price fills the void and is removed once fully covered.
  • Number Of Breakouts: The gap remains until the price has closed across its boundaries a specific number of times.
  • Age Of Gap: The gap expires after a set number of bars.
• Breakouts Until Invalidation: Specifies the number of times price must "flip" over the zone before it is removed (active when using the Breakouts method).
• Bars Until Invalidation: Specifies the maximum duration a gap can remain on the chart (active when using the Age method).

Cosmetic Settings

• Bullish/Bearish Border Color: Sets the color for the upper and lower boundaries of the zones.
• Middle Line Color: Sets the color for the median line within the gap.
• Bullish/Bearish Background Color: Adjusts the fill color and transparency of the zones.
• Border/Middle Line Width: Adjusts the thickness of the plotted lines for better visual clarity.

FAQ

How do I access Fair Value Gap?

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

Can this indicator be used for automated alerts?

Yes, the script includes multiple alert conditions for new gaps, partial fills, full fills, breakouts, and invalidations.

Does it work on all timeframes?

Yes, the Fair Value Gap logic is fractal and can be applied to any timeframe, from 1-minute scalping charts to monthly investment horizons.