Fair Value Gap

The Fair Value Gap indicator identifies and visualizes market imbalances across current and higher timeframes to provide actionable price targets. This tool highlights bullish and bearish gaps that often act as magnets for price action, allowing traders to monitor potential fill zones and institutional order flow.

Usage

The Usage section describes how the script can be used to identify market inefficiency. Fair Value Gaps (FVGs) are created when there is a significant price move that leaves a "gap" between the wick of the first candle and the third candle in a three-candle sequence. These areas represent price levels where the market was "unfairly" delivered and typically expect a future retest.

The indicator is versatile and can be used for:

• Targeting: Price often returns to fill these gaps before continuing its trend.
• Support and Resistance: Filled or partially filled gaps often flip into support or resistance zones.
• MTF Confluence: By viewing Higher Timeframe (HTF) gaps on a Lower Timeframe chart, traders can align macro objectives with micro entries.

Details

The script executes by scanning the price action for the specific three-candle formation that constitutes an FVG. It differentiates between bullish gaps (undervalued price) and bearish gaps (overvalued price).

A unique feature of this implementation is the MidPoint Fill logic. Users can choose to have a gap considered "filled" as soon as price touches the 50% equilibrium level of the zone, rather than requiring a 100% retracement. Additionally, the script manages chart clutter by automatically deleting or truncating historical gaps once they have been mitigated by price action.

Settings

MTF Settings

• MTF Timeframe: Specifies the higher timeframe to fetch Fair Value Gaps from.
• MTF Options: Determines whether to show only the Current TF, only the HTF, or both simultaneously.
• Offset / MTF Offset: Adjusts the horizontal placement of labels for better visibility.

General Settings

• MidPoint Fill: When enabled, the indicator considers the gap mitigated and removes it once the midpoint (50% level) is touched.
• Delete Old On Fill: If enabled, the box is removed from the chart once filled. If disabled, the box remains but its extension is stopped at the point of the fill.
• Label FVG Timeframe: Displays a text label indicating the specific timeframe of each gap.

Coloring

• Bullish/Bearish FVG: Customizes the color and transparency for current timeframe gaps.
• MTF Bullish/Bearish FVG: Customizes the color for higher timeframe gaps to differentiate macro zones.
• MidPoint Color: Changes the color of the 50% equilibrium line.

FAQ

How do I use the Higher Timeframe feature properly? It is recommended to always select a timeframe higher than your current chart (e.g., viewing 1-hour gaps on a 5-minute chart). Selecting a timeframe lower than your chart period may result in inconsistent data visualization due to platform limitations.

What is the MidPoint Fill? The midpoint represents the 50% level of the gap. Many traders view this "Consequent Encroachment" as a sufficient retest of an imbalance. Enabling this setting allows the script to treat the gap as filled once this level is reached.

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