Fair Value Gap Re-Entry Trading with Fixed Stops and Targets

Summary

This strategy identifies bullish and bearish fair value gaps from three-candle price relationships. A bullish gap forms when the current low is above the high from two candles earlier and the middle candle closes above that earlier high; the bearish definition reverses the conditions. A trade is triggered when price re-enters the latest gap zone, with long entries for bullish gaps and short entries for bearish ones. Each trade uses a fixed 0.10% stop and 0.10% target. A threshold filter is intended to exclude small gaps, with a manual setting or an automatic mode based on historical volatility.

The document presents the method as a way to trade short-term price imbalances, but supplies no performance evidence. Its published backtest settings specify ETH/USDT futures over about a year at a four-day period; these settings alone do not validate the claims about precision or live consistency. Risks include frequent trades and costs, noise in quiet or ranging markets, stops that may be too tight in volatile conditions, and countertrend entries. Higher-timeframe, volume, and volatility filters are proposed refinements, not demonstrated results.

Key ideas

• Bullish and bearish gaps are defined using the current candle and the candle two periods earlier, with the middle close as an added condition.
• The strategy enters when price returns to the latest gap zone, taking long trades in bullish gaps and short trades in bearish gaps.
• Each entry is assigned a fixed 0.10% stop and target, while a threshold filter screens gap size.
• No performance results are provided, and the stated backtest settings do not establish that the method works in live markets.
• Frequent signals, fixed-stop sensitivity, and countertrend entries are identified risks; volatility, volume, and higher-timeframe filters are proposed.

Tags

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