Fair Value Gap Signals for Trend Following

Summary

This strategy uses gaps between a bar’s high or low and prices from two bars earlier to identify bullish or bearish setups. A bullish setup enters long when the current low and close are above the earlier high; a bearish setup enters short when the current high and close are below the earlier low. In long-only mode, a bearish signal closes the position. The document presents the method as trend following and suggests that it may capture emerging moves, while warning that it can generate false signals and perform poorly in sideways markets.

The suggested safeguards include stop losses, volume or moving-average filters, and ATR-based risk controls. Published settings describe a BTC/USDT futures backtest over a limited period, but no performance results are provided. The written rules and the included source do not fully align on which bar’s close is checked, so the precise signal implementation should be verified before interpreting or reproducing results. The strategy is therefore a simple pattern-based proposal, not evidence of predictive accuracy.

Key ideas

• The strategy identifies bullish and bearish gaps by comparing current prices with highs or lows from two bars earlier.
• A bullish signal opens a long position, while a bearish signal opens a short or closes a long in long-only mode.
• The document warns that sideways markets can produce false signals and small losses.
• ATR-based stops and volume or moving-average filters are proposed as possible refinements.
• The described backtest settings include BTC/USDT futures, but no performance results are reported.

Tags

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