Detecting Fair Value Gap Reversals with Volatility-Adjusted Thresholds

Summary

This indicator identifies bullish and bearish fair value gaps from three-bar price relationships, then monitors whether price later moves back through the gap. A gap is retained only when its size exceeds a threshold scaled by average true range, making the filter responsive to volatility. The tool plots active gap zones, their midpoint, and reversal or invalidation markers, with settings to control how many zones appear and whether completed gaps remain visible.

The document supplies indicator code and explains the intended chart interpretation, but provides no tests, trade rules, or evidence that gap reversals predict profitable entries. Its terminology also uses reversal and filling in ways that can be ambiguous: the code tracks price crossing gap boundaries, while the text describes retracement and invalidation. Users would need to define signal timing, exits, and risk controls, and evaluate performance across instruments and timeframes before relying on it.

Key ideas

• Bullish gaps occur when the current low exceeds the high from two bars earlier, while bearish gaps use the inverse relationship.
• The indicator filters gaps by requiring their size to exceed an average true range based threshold.
• It tracks subsequent price crossings and plots gap zones, midpoint references, and reversal markers.
• Display settings control the number of zones shown and whether completed gaps remain visible.
• The document offers implementation details but no evidence of predictive performance or a complete trading system.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.