Fair Value Gap Retracement Strategy with Midpoint Entries and Risk Filters

Summary

This strategy looks for bullish or bearish fair value gaps, defined by a gap between the current candle and the candle two bars earlier. A qualifying gap must also have a candle moving in the gap’s direction and, by default, a range at least as large as an ATR-based threshold. The script then sets a retracement entry at the midpoint of a recent price range, with a stop at the quarter point and a default target at the three-quarter point. Alternative targets use fixed risk multiples.

An entry is triggered when price touches the midpoint before the setup expires. Optional filters align trades with a long-period EMA, RSI thresholds, a time session, and a minimum stop distance. Position size can be fixed or calculated from a chosen equity risk percentage, with optional compounding. The document provides implementation details but no performance report or empirical evidence. Its range anchors use recent lows and highs in a specific way, and its assumptions about fills, fees, and sizing may not match live markets; results require independent testing.

Key ideas

• Bullish and bearish setups begin with a three-candle fair value gap and directional displacement.
• The strategy places a retracement entry at the midpoint of a recent price range.
• Stops use the quarter point of the range, while targets can use the opposite quarter point or fixed risk multiples.
• EMA, RSI, session, ATR displacement, and minimum stop distance filters are configurable.
• Position size can be fixed or based on a percentage of equity, with optional compounding.

Tags

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