Fair Value Gap

Fair value gaps (FVG) are essential tools for technical analysts, highlighting imbalances between market participants. This indicator displays fair value gaps alongside metrics like the percentage of filled gaps and their average duration before being filled.

Traders can receive alerts when an FVG is filled, enhancing their trading strategy with timely notifications.

How to Trade Fair Value Gaps?

In trading, FVGs signal potential areas of support (bullish FVG) and resistance (bearish FVG). Once a gap is filled, indicating the closure of an imbalance, traders often anticipate a price reversal.

Those adopting a contrarian strategy may benefit from this approach, while trend-followers might utilize FVGs as actionable signals. This means going long when a bullish FVG is identified and short when spotting a bearish FVG.

Understanding Mitigation

By default, the indicator displays only unmitigated FVGs. However, users have the option to track the mitigation level of already addressed FVGs, specifically the lower extremity of bullish and the upper extremity of bearish gaps.

With the "Dynamic" setting, users can monitor the progress of a mitigated FVG.

Setting the Right Threshold

The height of the gap can reflect the level of imbalance between buyers and sellers. Traders can filter FVGs based on this gap height using the "Threshold %" setting, ensuring more precise trading indicators. The "Auto" function applies an automatic threshold, capturing only the more volatile FVGs.

Indicator Detection Rules

The script applies these criteria for identifying FVGs:

Bullish FVG

• low > high(t-2)
• close(t-1) > high(t-2)
• (low - high(t-2)) / high(t-2) > threshold

Upper Bullish FVG = low Lower Bullish FVG = high(t-2)

Bearish FVG

• high < low(t-2)
• close(t-1) < low(t-2)
• (low(t-2) - high) / high < -threshold

Upper Bearish FVG = low(t-2) Lower Bearish FVG = high

Adjustable Settings for Custom Strategies

• Threshold %: Set the percentage threshold to filter FVGs by height.
• Auto Threshold: Automatically uses the cumulative mean of FVG heights as a threshold.
• Unmitigated Levels: Extend mitigation levels for unmitigated FVGs as set by the user.
• Mitigation Levels: Reveal mitigation levels of addressed FVGs.
• Timeframe: Select the data timeframe for detecting FVGs.

FAQ

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

What makes FVG a vital trading indicator? FVG highlights potential price reversals, serving both contrarian and trend-following trading strategies.

Can alerts be set for FVG instances? Yes, traders can enable alerts for when an FVG is filled, providing real-time insights.