Fair Value Gap Absorption Indicator

Name: Fair Value Gap Absorption Indicator
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Fair Value Gap Absorption Indicator

The Fair Value Gap Absorption Indicator is an essential tool for traders focusing on price action, specifically designed to detect fair value gap imbalances and meticulously track their mitigation status. It highlights these imbalances until a new fair value gap surfaces, offering traders insights into market inefficiencies caused by substantial buying or selling pressures.

Fair Value Gaps (FVGs) represent these market discrepancies and often occur due to significant price movements, creating voids in the market that can act as a magnet for prices looking to revert.

How to Use the Fair Value Gap Absorption Trading Indicator?

An FVG is identified within a three-candle pattern. It becomes apparent when one large candle emerges where the preceding and succeeding candle’s wicks do not overlap with this central large candle, forming what is known as the fair value gap. The space between these non-overlapping wicks highlights the gap traders pay attention to.

Price action often revisits these imbalances, gradually mitigating them. Such mitigation can span multiple bars, and the Fair Value Gap Absorption Indicator provides a visual tool for traders to monitor the degree of mitigation underway.

Normally, these fair value gaps draw the price toward them, giving traders the opportunity to anticipate such movements. As the price corrects these imbalances, it often resumes its journey in the trend’s direction, making it crucial for traders to utilize this in their trading strategy.
Optimizing Indicator Settings for Better Trading Strategies

Adjusting Fair Value Gaps Settings

Fair Value Gap Width Filter: This feature allows traders to fine-tune the detection sensitivity by setting a filtering multiplier. Refer to the tooltip within the charting platform for more detailed instructions.
Color Customization Options: Tailor the visual representation of the gaps by adjusting colors for bullish/bearish imbalances and their mitigation statuses.
Percentage Display of Mitigation: Enable this setting to visualize how much of the imbalance has been mitigated by displaying the percentage overlaid on the chart.
Visibility of Historical Fair Value Gaps: Toggle this option to keep track of past imbalances, aiding in understanding historical price behaviors.

What Limitations Should Traders Be Aware Of?

Traders should note that the filtering feature is not applicable for the initial 144 candles (based on fixed-length ATR calculations) due to the absence of necessary ATR values for filtering purposes.
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