VWAP Gaps

The VWAP Gaps indicator tracks untested previous Volume Weighted Average Price (VWAP) levels to identify potential liquidity areas and market retests. By treating past volume-based value areas similarly to Naked Point of Control (nPOC), this tool highlights significant price levels that may act as magnets or reversal points when re-encountered by current price action.

Usage

The tool is primarily used to identify "untapped" liquidity zones where price has not yet returned to a previous period's VWAP.

• Gap Retests: The script plots horizontal lines at previous VWAP levels. These lines remain active until the price crosses them, signaling that the "gap" or liquidity at that level has been filled or tested.
• Sweep Identification: The indicator identifies sweeps of previous VWAP levels using specific conditions. A sweep occurs when the price moves beyond a previous VWAP level but fails to close past it, often indicating a rejection.
• Visual Cues: When a sweep condition is met, the indicator changes the bar color and plots shapes (triangles) to highlight potential reversal opportunities.

Details

The script operates on the theory that previous areas of high-volume agreement (VWAP) serve as historical benchmarks for value. Much like Naked POCs in Market Profile, these levels often see a reaction when price eventually returns to them. The "Gaps" refer to the distance between the current price and these untested historical value levels.

The sweep logic utilizes three specific filters to ensure signal quality:

1. Bar Direction: Requires a bullish or bearish candle relative to the sweep direction.
2. Price Action: Checks if the open and close are on one side of the level while the wick extends beyond it.
3. VWAP Relationship: Compares the current VWAP position relative to the previous VWAP to confirm trend alignment.

Settings

• VWAP Source: Determines the price source used for the VWAP calculation (default is HLC3).
• VWAP Options: Sets the anchor period for the VWAP (Day, Week, Month, Quarter, or Year).
• Plot VWAP: Toggles the visibility of the current session's VWAP line.
• Plot VWAP Gap levels: Toggles the visibility of the lines representing untested previous VWAP levels.
• Plot pVWAP levels: Shows or hides the level of the most recent previous VWAP.
• Plot pVWAP sweep: Enables or disables the shapes and bar coloring associated with VWAP sweeps.

FAQ

How do I use the VWAP Gaps lines?

The lines represent historical levels that the market previously deemed "fair value." Traders often look for price to be drawn toward these lines (magnet effect) or for price to reject these levels when they are first tested after a long period.

What causes a VWAP Gap line to disappear?

A gap line is removed automatically once the price "tests" it. For a bullish gap (below price), the line is removed if the high of a bar touches it; for a bearish gap (above price), it is removed if the low touches it.

How can I access VWAP Gaps?

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