Fair Value Gap Signals with Volume and Gap-Size Filters
Summary
This document describes a strategy that detects bullish and bearish fair value gaps from three-candle price relationships. It counts gaps over a rolling 50-period window and normalizes gap widths for display. A signal is verified when the gap coincides with elevated prior-bar volume or a gap size above a moving reference threshold. On a verified bullish signal, the strategy closes a short position if present and enters long; bearish signals reverse that process.
The source gives no measured backtest results, despite describing signal quality and market-opportunity benefits. The text itself identifies key limitations: fixed verification settings may not suit different conditions, volatile markets can produce false signals, no stop-loss or take-profit is included, and frequent reversals may raise costs. It proposes adaptive settings, trend filters, staged sizing, dynamic stops, and transaction-cost awareness as possible extensions.
Key ideas
- A bullish gap occurs when the current low exceeds the high from two bars earlier, with the bearish rule reversed.
- Signals require confirmation by prior-bar volume or a gap-size threshold.
- A rolling 50-period count and normalized gap widths support measurement and visualization.
- Verified signals close an opposing position before opening a position in the signal direction.
- The strategy has no stop-loss or take-profit and supplies no quantified performance evidence.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.