Fair Value Gaps Mitigation Oscillator [LuxAlgo]

5 Mar

The Fair Value Gaps Mitigation Oscillator is an oscillator based on the traditional Fair Value Gaps (FVGs) imbalances. The oscillator displays the current total un-mitigated values for the number of FVGs chosen by the user.

The indicator also displays each New FVG as a bar representing the current ratio of the New FVG in relation to the current un-mitigated total for its direction.

🔶 USAGE



When an FVG forms, it is often interpreted as strong market sentiment in the direction of the gap. For example, an upward FVG during an uptrend is typically seen as a confirmation of the strength and continuation of the trend, as it indicates that buyers are willing to purchase at higher prices without much resistance, suggesting strong demand and positive sentiment.

By analyzing the mitigation (or lack thereof), we can visualize the increase of directional strength in a trend. This is where the proposed oscillator is useful.

🔶 DETAILS



The oscillator's values are expressed as Percentages (%). Each FVG is allocated 100% of the total of its width with a max potential value of 100 and minimum potential value of 0.

Based on the "FVG Lookback" Input, the FVGs are scaled to fit within the range of +1 to -1. Using a higher "FVG Lookback" value will allow you to get indications of longer-term trends.

A higher value of the normalized bullish FVG areas suggest a stronger and cleaner uptrend, while lower values of the bearish the normalized bullish FVG areas suggest a stronger and cleaner downtrend.

• +1 or -1 indicates that there is a Full Lookback of FVGs, and each one is fully un-mitigated, and the opposite direction of FVGs is entirely Mitigated.
  

When the price closes over/under or within an FVG it begins to get mitigated, when this happens the % of mitigation is subtracted from the total.

When a New FVG is formed, a Histogram bar is created representing the ratio of the current FVG's width to the total width off all un-mitigated FVGs.

• The entire bar represents 100% of total un-mitigated FVG Width.
  
• The filled area represents the current FVG's width relative to the whole.
  
• A 50% hash mark is also displayed for reference.
  

🔶 SETTINGS

• FVG Lookback - Determines the number of FVGs (Bullish and Bearish Pairs) to keep in memory for analysis.