Hello all, and welcome to another update of your friends in TrendSpider. In this update, we have added three new indicators to the platform. They include “fair value gap” (beta), “gap detector” (beta), and VWAP with standard deviation ranges. Details after the jump!
Fair value gap (beta)
Fair value gaps can be a very useful concept in price action trading. They detect situations where there are inefficiencies or imbalances in the market. In this case, we define the imbalance as an example where buying and selling are not equal. This is often pictured as a large candle whose wicks from the adjacent candles do not completely overlap with the large candle. Below is an example of a fair value gap.
The fair value gap indicator has one real, editable parameter, the “gap factor”, which is preset to a value of 1. The larger this value, the less FVG you will see on the graph. The smaller this value, the more FVG you will see on the graph.
Fair value gaps can be traded similarly to a standard price gap. It is very common for the gaps to fill before the price can continue in one direction or the other, so the trader can close the FVG in the same way, as a potential long or short target.
If the price is in a downtrend and there is a fair value gap above, the trader may look to sell when the FVG fills. Conversely, if the price is in an uptrend and there is FVG below, the trader may look to buy when FVG is filled.
The Gap Detector Indicator is a simple tool that provides a huge benefit. It is very similar to our ‘Gap Snake’ tool, but with slightly different functionality. Where the ‘Gap Snake’ closes each previous gap when a new one is formed, the gap detector leaves each gap open until it is filled. This allows the user to easily visualize where each open gap is on the chart at any time.
Traders can edit Gap Detector parameters in several simple ways. First, via the gap factor, which was previously set to 0.5. The larger the value, the fewer gaps will be detected. Additional parameters allow the user to change the colors of individual gaps. If one gap is more important than the other, give it a unique color.
VWAP with standard deviation ranges
VWAP with Standard Deviation Bands is a new experience of the standard VWAP indicator. It includes standard deviation ranges that allow traders to measure the speed of movement and price distance from the VWAP. St. Dave. Levels are preset to 1, 2, 3, and 4 standard deviations. The closing value of the previous day’s VWAP is marked with a blue dotted line.
The farther or farther the price is from the VWAP, the more likely it is to return to it (meaning a bounce). Traders can use standard deviation levels as potential levels of support or resistance.
The closer the price is to the largest standard deviation values, the more overbought or oversold the stock. When the current standard deviation level coincides with the previous day’s VWAP level, this can be a strong level of support or resistance.
We hope you find these new indicators useful, and as always, if you have any questions feel free to reach us via chat via the “Contact Us” button in the bottom right corner of your chart!