Fair Value Gap Oscillator

The Fair Value Gap Oscillator indicator provides a momentum-based visualization of market inefficiencies by tracking Fair Value Gaps (FVGs) in an oscillator format. It identifies bullish and bearish gaps and applies a decay mechanism to prioritize recent price action, helping traders identify momentum strength and potential trend reversals.

Usage

The Usage section describes how the script can be used to gauge market sentiment and identify turning points.

• Momentum Tracking: The oscillator aggregates recent FVG activity. When the gray net line is above zero, bullish FVG intensity is dominant; when below zero, bearish intensity prevails.
• Divergence Signals: The tool identifies potential reversals through divergence markers. A bullish divergence occurs when the price hits a 25-bar low while the net oscillator remains positive and the bullish component is near its recent peaks.
• Trend Confirmation: Traders can use the Net FVG Oscillator as a trend-following marker to confirm the strength of a move based on the frequency and size of gaps appearing in the trend direction.

Details

The script functions by scanning historical bars for price gaps between the high of the third bar and the low of the first (for bearish) or vice versa (for bullish).

1. Initial Value: The oscillator starts at zero.
2. Contribution: When a new FVG is confirmed, its relative size (FVG Width divided by ATR) is added to the respective bullish or bearish oscillator.
3. Decay: Every bar, the values are multiplied by (1 - Decay Coefficient). This ensures that older gaps lose influence over time, focusing the output on current market conditions.

Settings

General Configuration

• Decay Coefficient: Controls how quickly past FVGs lose influence. Higher values prioritize the most recent gaps.
• Show Divergences: Toggles the calculation and display of reversal markers.
• Show FVGs: Enables or disables the visualization of FVG zones on the chart.

Fair Value Gaps

• Zone Invalidation: Determines if a gap is considered "filled" based on Wick or Close price penetration.
• Zone Filtering: Choose between "Average Range" (size-based filtering) or "Volume Threshold" (filtering based on relative volume).
• FVG Detection: "Same Type" requires all three bars forming the gap to be the same direction; "All" allows mixed bar types.
• Detection Sensitivity: Adjusts the size threshold for gaps to be included in the oscillator.

FAQ

How do I interpret the gray line in the oscillator? The gray line represents the Net FVG Oscillator, which is the sum of bullish and bearish gap intensities. It serves as a dynamic sentiment gauge.

What does the Decay Coefficient do? It determines the "memory" of the indicator. A high decay makes the oscillator very reactive to new gaps, while a low decay provides a smoother, longer-term view of gap activity.

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