Fair Value Gap [LuxAlgo]

How it works

Fair Value Gaps detect price imbalances by comparing current and previous candle prices using specific criteria. For bullish FVG, the current low must be higher than the previous high, with the close price exceeding the previous high.

For bearish FVG, the current high must be lower than the previous low, with the close price below the previous low. The script calculates gap height percentages to determine significant imbalances, filtering out minor fluctuations using a threshold setting

Why it may be useful

Fair Value Gaps provide traders with insights into market sentiment and potential price reversals. By identifying areas of significant price imbalance, traders can anticipate potential support and resistance zones.

These gaps reveal moments of market inefficiency where buying and selling pressures are uneven. Traders can use FVG to make more informed decisions about entry and exit points, understanding where price might potentially change direction

When to explore it

Fair Value Gaps work best in markets with clear price movements and identifiable trends. They are most effective in liquid markets like forex, stocks, and cryptocurrencies. Traders should use FVG in conjunction with other technical indicators to confirm signals.

They are particularly useful during range-bound and trending markets. Best applied on timeframes from 1-minute to daily charts. Works well for both trend-following and contrarian trading strategies

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