Fair Value Gaps identify price inefficiencies where buying and selling volumes are imbalanced, creating gaps between consecutive candle wicks that often act as price magnets.
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Fair Value Gaps (FVGs) are created when there is an imbalance between buying and selling volumes, resulting in gaps between the wicks of consecutive candles. The script identifies these gaps by analyzing the relationship between consecutive candle bodies and their respective wicks, highlighting areas of price inefficiency. These gaps are visualized on the chart with color-coded indicators representing bullish or bearish market conditions.
When a gap is identified, the script tracks its potential fill, which occurs when price moves back into the original gap zone. Traders can customize settings to determine whether a gap is considered filled at its midpoint or complete fill, and choose to only recognize gaps after a candle has fully closed for additional confirmation.
Why it may be useful
Fair Value Gaps provide traders with a unique perspective on market inefficiencies and potential price movement dynamics. By identifying areas where buying and selling pressures were unbalanced, traders can gain insights into potential future price actions and market sentiment. These gaps often serve as significant points of interest for both trend continuation and potential reversal strategies.
The importance of FVGs lies in their ability to highlight market structure and provide traders with actionable information about potential price magnets. They offer a systematic approach to understanding price behavior, helping traders make more informed decisions about entry and exit points in various market conditions.
When to explore it
Fair Value Gaps are most effective in markets with clear price movements and sufficient liquidity, such as major forex pairs, stock indices, and actively traded commodities. They work best in timeframes that provide enough price data to accurately identify gaps, typically ranging from 5-minute to daily charts. Traders should look for FVGs in trending markets where price has a clear directional bias.
The signal is particularly useful during periods of market volatility or when price is approaching known support and resistance levels. Traders should combine FVG analysis with other technical indicators to confirm potential trade setups and reduce false signals. It's crucial to understand that not all gaps will be filled, and proper risk management strategies should always be employed.
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What we’ve verified
Access, alerts and repainting behaviour have not been independently verified for this indicator. Check the creator’s current publication and settings.
General descriptions and classifications are recovered research. Verified details above identify the specific checks we have completed. Check the creator’s current publication for later changes.
