Unveiling Inverted Fair Value Gaps: A Custom Indicator for TradingView

Fair Value Gaps (FVGs) are a popular concept among traders, highlighting areas of potential price inefficiency. However, their validity can be challenged by price action, leading to the emergence of Inverted Fair Value Gaps (IFVGs). This article delves into creating a custom indicator on TradingView to pinpoint these IFVGs, empowering you to refine your trading strategies.

Understanding Inverted Fair Value Gaps

Imagine a scenario where price skips a significant area on the chart, leaving a visible "gap." If this gap precedes a strong price move (upward for bullish FVGs, downward for bearish FVGs), it suggests an imbalance in supply and demand, potentially leading to a price retracement to "fill the gap." However, the market doesn't always cooperate. Sometimes, price action can completely disregard the FVG, rendering it invalid. This is where IFVGs come into play.

An IFVG occurs when price action closes below a previously identified bullish FVG or above a bearish FVG. This price movement signals a potential reversal of the anticipated direction, suggesting the initial FVG might not be filled after all. Identifying IFVGs can be crucial for adjusting your trading strategy based on the evolving market sentiment.

Crafting Your Custom IFVG Indicator

TradingView's Pine Script allows you to create custom indicators tailored to your needs. Here's a breakdown of the steps involved:

1. Defining Variables:

   • fvgHigh: This variable will store the high price of the bullish FVG.
   • fvgLow: This variable will store the low price of the bearish FVG.
   • isBullishFVG: This variable will be a flag set to true for bullish FVGs and false for bearish FVGs.

2. Identifying FVGs: This section will involve logic to detect FVGs based on your preferred criteria. Here's a common approach:

   • Check if the current bar's high is significantly higher than the previous bar's high and doesn't overlap with any wicks of the two bars preceding it (for bullish FVG).
   • Conversely, check if the current bar's low is significantly lower than the previous bar's low and doesn't overlap with any wicks (for bearish FVG).
   • If an FVG is identified, store the relevant high/low value in fvgHigh or fvgLow and set isBullishFVG accordingly.

3. Detecting IFVGs:

   • Check if isBullishFVG is true (indicating a previous bullish FVG).
   • If yes, compare the current bar's close price with fvgLow (the low of the bullish FVG).
   • If the close price is below fvgLow, an IFVG is detected.
   • Follow similar logic for bearish FVGs, comparing the close price with fvgHigh.

4. Visualizing IFVGs:

   • Use plot() function to display a visual representation of the IFVG zone. This could be a horizontal line or a shaded area encompassing the FVG range.
   • Change the color of the line/area based on the IFVG type (e.g., red for bearish IFVG, green for bullish IFVG).

Additional Considerations:

• Customization: You can customize the indicator further by:
  • Adjusting the logic for FVG detection based on your preferred criteria (e.g., minimum price gap size).
  • Implementing different visualization styles for IFVGs.
  • Adding alerts to notify you when an IFVG is detected.
• Trading with IFVGs: Remember, IFVGs are simply signals, not guarantees. Combine them with other technical indicators and price action confirmation for informed trading decisions. Consider factors like market volatility and volume when interpreting IFVGs.

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Conclusion

By creating a custom IFVG indicator on TradingView, you gain a valuable tool for identifying potential reversals in price action. This empowers you to adapt your trading strategies based on the evolving market dynamics. Remember, backtest your strategies using the indicator to assess its effectiveness before deploying it with real capital. With practice and a keen eye on the markets, IFVGs can become a valuable addition to your technical analysis toolbox.