Volumetric Fair Value Gaps

The Volumetric Fair Value Gaps indicator highlights significant price imbalances on the chart while incorporating volume data to provide deeper insight into market sentiment and potential reaction zones. By filtering for gaps that exceed historical volatility thresholds, this tool helps traders identify high-probability areas for price reversals or trend continuations.

Usage

The indicator plots colored boxes on the chart representing fair value gaps (FVGs). Bullish gaps appear when the current low is higher than the high from two bars ago, while bearish gaps appear when the current high is lower than the low from two bars ago.

• Market Analysis: Traders can use these boxes as support or resistance zones. FVGs formed with higher relative volume are considered more significant, suggesting a stronger likelihood of a price reaction when the zone is retested.
• Mitigation: By default, the boxes extend until they are mitigated (hit by price). Users can choose to remove these boxes entirely once mitigation occurs to maintain a cleaner chart.
• Alerts: The script includes built-in alert conditions for both the formation and the mitigation of bullish and bearish gaps, allowing for real-time monitoring.

Details

The Volumetric Fair Value Gaps tool distinguishes itself from standard FVG indicators by using a noise-reduction mechanism. It calculates the relative size of a gap by comparing the current candle's range to a Simple Moving Average (SMA) of candle ranges over a user-defined lookback period. A gap is only displayed if it exceeds a specific "Noise Reduction Factor." This ensures that only mathematically significant imbalances—those substantiated by price expansion—are highlighted. Additionally, the indicator displays the volume associated with the gap's formation directly inside the box, providing an extra layer of confirmation.

Settings

• Remove Mitigated FVGs From Chart: When enabled, the indicator deletes the FVG box as soon as price action touches or crosses the gap boundary.
• FVG Noise Reduction Length: Sets the lookback window used to calculate the average candle range. Increasing this value widens the historical comparison for what constitutes a significant gap.
• Noise Reduction Factor: A multiplier that determines the sensitivity of the detection. Higher values require larger price imbalances to trigger the appearance of a gap.
• Bullish Color: Sets the color for bullish fair value gaps.
• Bearish Color: Sets the color for bearish fair value gaps.

FAQ

How do I access the Volumetric Fair Value Gaps?

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

What does the number inside the boxes represent?

The number displayed within each FVG box represents the volume of the candle that created the gap, helping you gauge the strength of the move.

Can I change the sensitivity of the detections?

Yes, you can adjust the "Noise Reduction Factor" in the settings. A higher value will filter out smaller, less significant gaps, while a lower value will show more frequent imbalances.