Hello, everyone, and welcome to another software update from your friends at TrendSpider. In this update, we’ve added three new indicators to the platform. They include the ‘Fair Value Gap’ (Experimental), ‘Gap Detector’ (Experimental) and VWAP with Standard Deviation Bands. Details after the jump!
Fair Value Gap (Experimental)
Fair value gaps can be a very useful concept in price action trading. They detect instances in which there are inefficiencies, or imbalances, in the market. In this case, we define imbalance as an instance in which buying and selling is not equal. This is often visualized as a large candle whose neighboring candles’ wicks do not fully overlap the large candle. Below is an example of a Fair Value Gap.
The Fair Value Gap indicator contains only one real editable parameter, the ‘Gap Factor’, which is preset to a value of 1. The larger this value is, the less FVG’s you’ll see on the chart. The smaller this value is, the more FVG’s you’ll see on the chart.
Fair Value Gaps can be traded similarly to a standard gap in price. It’s very common for gaps to fill before price is able to continue in one direction or another, so a trader can play the closing of a FVG in the same way, as a potential long or short target.
If price is in a downtrend and there is a fair value gap above, a trader might look to go short when that FVG fills. Inversely, if price is in an uptrend and there is a FVG below, a trader might look to go long when the FVG fills.
The Gap Detector indicator is a simple tool that provides big utility. It’s very similar to our ‘Gap Snake’ tool, but with slightly different functionality. Where the ‘Gap Snake’ closes each previous gap as a new gap is formed, the Gap Detector leaves each gap open until it fills. This allows the user to easily visualize where every open gap is on the chart at any time.
Traders can edit the parameters of the Gap Detector in a few simple ways. First, via the Gap Factor, which is preset to .5. The larger the value, the less gaps will be detected. The additional parameters allow a user to vary the colors of individual gaps. If one gap is more important than another, give it a unique color.
VWAP With Standard Deviation Bands
The VWAP with Standard Deviation Bands is a new take on the standard VWAP indicator. It includes standard deviation bands which allow traders to gauge velocity of a move and the distance of the price from the VWAP. The St. Dev. 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 more extended, price gets away from the VWAP, the more likely it is to revert back to it (mean reversion). Traders can use the standard deviation levels as potential levels of support or resistance.
The closer price is to the largest standard deviation values, the more overbought or oversold a stock might be. When a current standard deviation level coincides with a previous day’s VWAP level, this can be a powerful level of support or resistance.
We hope you find these new indicators useful, and as always, if you have any questions do feel free to reach out to us in chat via the ‘Contact Us’ button in the bottom right-hand corner of your chart!