Fair Value Gap Finder

How it works

Fair Value Gaps identify price inefficiencies by comparing candle highs and lows across three consecutive bars. A bullish FVG occurs when the low of two candles prior is higher than the current bar's high, indicating a potential upward price movement. Conversely, a bearish FVG is detected when the high of two previous candles is lower than the current bar's low.

The script visually represents these gaps using color-coded, semi-transparent rectangles. Green rectangles mark bullish FVGs, suggesting potential support zones, while red rectangles indicate bearish FVGs, representing potential resistance areas. These visual markers help traders quickly identify and assess price inefficiencies in the market.

Why it may be useful

Fair Value Gaps provide traders with a unique perspective on market dynamics by highlighting areas of price inefficiency and potential market imbalances. By identifying these gaps, traders can gain insights into potential future price movements and areas where the market might seek equilibrium. These visual indicators help traders understand the underlying market structure and potential turning points.

The color-coded rectangles offer an intuitive way to recognize potential support and resistance zones, enabling traders to make more informed decisions about entry and exit points. By understanding these price inefficiencies, traders can develop more strategic trading approaches and improve their risk management techniques.

When to explore it

Fair Value Gaps are most effective in markets with clear price movements and identifiable trend structures. They work best in liquid markets with sufficient trading volume, such as major currency pairs, stock indices, and high-volume commodities. Traders should focus on using FVGs in timeframes that provide clear, distinguishable price patterns, typically ranging from 5-minute to daily charts.

These indicators are particularly useful during trending market conditions, where price tends to move more consistently and predictably. Traders should combine Fair Value Gap analysis with other technical indicators and fundamental analysis to confirm signals and reduce false positives. Additionally, they are most reliable when used in conjunction with other trend confirmation tools and risk management strategies.

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