The FVG Indicator is a tool that reveals price imbalances in the market, which is a complex place influenced by many factors. Traders are using technical indicators more to gain an advantage. Among these, the Fair Value Gaps (FVG) Indicator stands out for finding market inefficiencies and imbalances, or when buying and selling aren’t equal. Let’s explore how this Smart Money indicator operates on NinjaTrader 8 charts.
The FVG indicator is made to show fair value gaps on NinjaTrader 8 charts.
Understanding Fair Value Gaps
Before we dive into the technical stuff, let’s understand what Fair Value Gaps (FVG) are. FVGs are basically when prices are uneven on one side of the market. They’re also called ‘price imbalances’ or ‘market inefficiency.’ The main idea is that prices move to find a balance between buyers and sellers, making the market work smoothly.
In a balanced market, there are as many buyers as there are sellers. This balance is seen on a price chart when candlesticks overlap. However, when prices suddenly move away from a trading zone, leaving a gap, that’s an FVG. These gaps show the actions of ‘smart money’ or big institutional traders.
In the chart below, red rectangles highlight short imbalances, and green rectangles show long imbalances.
This Smart Money Indicator isn’t a standalone trading indicator System.
Understanding this Smart Money Indicator
Fair Value Gaps are like when the prices are uneven on one side of the market, sometimes called ‘price imbalances’ or ‘market inefficiency.’ The main idea is that prices move around to match up buyers and sellers, like a market trying to keep things in balance. The ‘Smart Money Indicator’ players work with a lot of money, so they spread their orders across many price points.
Market Efficiency:
Market efficiency happens when there are as many people buying as there are selling. You can see this on a price chart when the candlesticks overlap, whether their bodies or wicks. The more they overlap, the better the market is working. But when prices don’t overlap, it’s seen as an imbalance.
When does an FVG occur?
An FVG occurs when the price diverges quickly from an order block. Such a move indicates that the ‘smart money’ is at play. To spot a Fair Value Gap, look for an area of market inefficiency (a lone green candle without a red counterpart or vice versa). If the candles on either side, including their wicks, fail to close these gaps, an FVG has likely formed.
It’s worth noting that markets may not immediately address these inefficiencies. Especially on larger timeframes, the resolution can stretch from days to even years. However, on intraday and scalping timeframes, corrections are often swift.
Showing FVGs from Higher Time Frame?
Users have the flexibility to customize the FVG indicator to display imbalances from a higher time frame. As illustrated in the screenshot below, despite the 3-minute timeframe, it plots FVGs based on the 60-minute chart.
How to Interpret an FVG?
Typically, an FVG should maintain the 50% level. Prices often react between the opening and the midpoint (50%) of the FVG. When the price fills the entire gap, it might be targeting the order block either above or below the FVG.
FVG Indicator Display Options
As traders delve into the FVG Indicator, they’ll notice a series of settings designed to enhance user experience and provide more granular insights. These options help customize the visual representation ensuring traders can tailor the indicator to their unique preferences.
- Users can view FVG areas for long and short.
- Support to display FVG from Higher Time Frame HTF.
- Option to remove FVGs when price moves enirely through them.
- Users can define a minimum size for highlighted FVGs in Points.
- The length of Fair Value Gap lines can be adjusted; setting it to 0 will extend the lines to the present candle.
- Indicator comes with Chart Trader to trade FVGs
Conclusion
The Fair Value Gaps Indicator for Ninjatrader 8 is a dynamic tool for traders looking to harness the power of market inefficiencies. Offering a visual representation of price imbalances and providing customizable alert options ensures that traders don’t miss out on potential trading opportunities arising from these gaps. Whether you’re a seasoned trader or just getting started, the FVG indicator is worth exploring to refine your trading strategies.
Head out to our store for a free trial or purchase.