Volume Gaps and ImbalancesThis Pine script indicator is designed to visually depict price inefficiencies, as identified by Volume Imbalances (VI) or Gaps. A Volume Gap is a scenario where the wicks of two successive candles don’t intersect, while an Imbalance occurs when only the wicks overlap, leaving the bodies apart. These zones of inefficiency frequently act as magnets for price, with the market striving rebalance in accordance with ICT principles.
Relevance:
Volume Gaps/Imbalances are zones of highly inefficient price delivery as per ICT concepts and represent a very strong draw to price. Price will often seek to rebalance those zones to ensure efficient price delivery. Consequently, these zones can provide good targets for entries in the opposite direction or take profit targets for previous entries in the direction of the Gap/Imbalance.
How It Works:
The indicator keeps track of all Gaps/Imbalances from the beginning of the available history. It automatically removes all mitigated Gaps/Imbalances, which are situations where the price has at least reached the bottom of a bullish gap or the top of a bearish gap.
On the last bar, the most recent valid gaps are highlighted with a box drawn from the start to the end of the gap. The start of a bullish gap is determined by the highest price of the previous candle’s open or close, while for bearish gaps, it’s the lowest price of the previous candle’s open or close. Conversely, the end of a bullish gap is the lowest price of the current candle’s open or close, and for bearish gaps, it’s the highest price of the current candle’s open or close.
To enhance the indicator’s speed and minimize chart noise, only the most recent gaps will be displayed, up to the limit set in the indicator settings.
Each displayed VI/GAP will indicate the size of the imbalance in ticks. For imbalances greater than 3 ticks, which represent stronger draws of liquidity, the color transparency will be reduced, and the text will be made more prominent. Volume Gaps are also marked with a 🧲 emoji for easy visual identification.
The indicator will automatically extend the boxes representing valid imbalances to the current bar for as long as the imbalance is not mitigated.
If an imbalance has been tapped, but not mitigated, the indicator will append 🚩emoji to denote that the imbalance has been partially mitigated and may no longer have as strong of a draw for price.
Configurability:
A user may configure the number of imbalances to show, the setting applies to bullish/bearish imbalances individually. This setting can be set to any value from 1 – 50.
Appearance wise, color, style and color transparency of each box representing an imbalance can be configured. The imbalance box label can be configured by setting the text size, along with the vertical & horizontal alignment.
What makes this indicator different:
Designed with high performance in mind, to reduce impact on chart render time.
Only keeps valid imbalances on the chart, with a limit on the # drawn
Indicates the size of the gap and provides visual markets to denote stronger, weaker and partially mitigated gaps
