Fair Value Gap [by Oberlunar]

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Fair Value Gap [by Oberlunar]

This indicator is designed to identify and display Fair Value Gaps (FVG) on the price chart. Fair Value Gaps are areas between candles where the price lacks continuity, leaving a "gap" that can serve as a reference point for price retracements. These zones are often considered important by traders as they represent market imbalances that tend to be "mitigated" (i.e., filled or tested) over time.

Purpose of Publication
This indicator addresses a common gap in FVG indicators. Most existing FVG indicators do not visually distinguish between mitigated (touched) FVGs and those that remain intact. With this indicator:

• Mitigated FVGs are clearly displayed with distinct colors, allowing traders to identify which zones have been partially or fully filled by the price.
  
• Unmitigated FVGs remain prominent, representing potential points of interest.
  

Key Features

Identification of Fair Value Gaps:

• A Bullish FVG (upward gap) forms when the high of the three previous candles (candle -3) is lower than the low of the next candle (candle -1).
  
• A Bearish FVG (downward gap) forms when the low of the three previous candles (candle -3) is higher than the high of the next candle (candle -1).
  

Dynamic Coloring:

• Unmitigated FVGs are highlighted with specific colors: green for Bullish and red for Bearish gaps.
  
• When an FVG is "touched" by the price (i.e., mitigated), the color changes:
  
• Yellow-green for mitigated Bullish FVGs.
  
• Purple for mitigated Bearish FVGs.
  

Handling Mitigated FVGs:

• When an FVG is touched by the price, it is visually updated with a different color.
  
• An option can be enabled to "shrink" the mitigated zone, adjusting the box to reflect the remaining untested portion of the gap.
  

Customization:

• Configure the maximum number of FVGs to display on the chart.
  
• Set specific colors for mitigated and unmitigated FVGs.
  
• Choose whether to automatically shrink mitigated zones.
  

How to Identify Support and Resistance Levels
Support:
Bullish FVGs represent potential support levels, as they indicate areas where the price might return to seek liquidity or fill the imbalance.
An FVG that is repeatedly touched without being fully filled becomes a significant support zone.

Resistance:
Bearish FVGs represent potential resistance levels, indicating zones where the price might stall or reverse direction.



Why a Repeatedly Mitigated FVG is Significant
When an FVG is touched or mitigated multiple times, it means the market recognizes that area as significant. This can happen for several reasons:

• Accumulation or Distribution: Institutional traders may use these zones to accumulate or distribute positions without causing excessive market movement.
  
• Presence of Liquidity: FVGs often represent areas with pending orders (stop-losses, limit orders), and the price revisits these zones to seek liquidity.
  
• Market Equilibrium: When an FVG is repeatedly filled, it indicates the market's attempt to balance a demand-supply imbalance. This makes the zone an important level to monitor for potential breakouts or reversals.