Automating Fair Value Gap Retracements with Three-Candle Imbalances

Summary

This article describes a Smart Money Concept approach that turns three-candle fair value gaps into automated trades. It identifies an imbalance around a large central candle when the first and third candles leave a gap between their wicks. The gap is drawn on the chart and treated as a zone of interest. For a bullish setup, the system buys when price returns to the lower area of the zone and targets its upper edge; for a bearish setup, it sells on a return to the upper area and targets the lower edge. The described design uses different stated reward-to-risk ratios for the two directions and drops setups that remain untouched beyond a set bar extension.

The article explains how the rules are represented in an MQL5 Expert Advisor and reports that it ran the system in the strategy tester, but the supplied text gives no clear performance figures or robust validation evidence. Its definitions of fair value and bullish versus bearish gaps are not consistently phrased, and the proposed rules are presented as educational starting points requiring further optimization. The article does not establish that the approach has predictive value across markets or conditions.

Key ideas

• A fair value gap is identified from the space between the wicks of the first and third candles around a large central candle.
• The system waits for price to revisit the marked imbalance zone before entering in the setup’s direction.
• Bullish and bearish setups use opposite entry areas, targets, and stated reward-to-risk ratios.
• Setups are removed from consideration after a predefined extension if price does not return to the gap.
• The article presents an EA implementation but does not establish reliable performance through clear, robust test evidence.

Tags

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