Fair Value Gap Absorption Indicator [LuxAlgo]

The Fair Value Gap Absorption Indicator aims to detect fair value gap imbalances and tracks the mitigation status of the detected fair value gap by highlighting the mitigation level till a new fair value gap is detected.

The Fair Value Gap (FVG) is a widely utilized tool among price action traders to detect market inefficiencies or imbalances. These imbalances arise when buying or selling pressure is significant, resulting in a large upward or downward move, leaving behind an imbalance in the market.

🔶 USAGE

A fair value gap appears in a triple-candle pattern when there is a large candle whose previous candle’s high and subsequent candle’s low do not fully overlap the large candle. The space between these wicks is known as the fair value gap.

Price can come back to these imbalance areas and mitigate them, however, this is sometimes a process involving multiple bars, the displayed imbalances by the indicator allow tracking the current mitigation level of a displayed imbalance.

Fair value gaps can become a magnet for the price before continuing in the same direction. Traders commonly wait for the price to revert toward the fair value gap to clear out the imbalance before continuing to move toward the prevailing trend.

🔶 SETTINGS

🔹Fair Value Gaps

• Fair Value Gap Width Filter: defines the filtering multiplier, please refer to the tooltip of the input option for further details.
  
• Bullish, Imbalance and Mitigation: color customization option.
  
• Bearish, Imbalance and Mitigation: color customization option.
  
• Display Percentage of Mitigation: Display the percentage of the mitigation areas.
  
• Historical Fair Value Gaps: toggles the visibility of the historical fair value gaps.
  

🔶 LIMITATIONS

Please note that filtering cannot be applied for the first 144 (atr fixed-length) candles since the atr value won't be present that is used for filtering.

🔶 RELATED SCRIPTS

Fair-Value-Gap
HTF-Fair-Value-Gap
Liquidity-Voids-FVG

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