Liquidity Trap Reversals Targeting Nearby Fair Value Gaps

Summary

This script describes a reversal strategy that treats a move beyond a recent swing level, followed by a close back inside it, as a liquidity trap. A wick-size threshold and separate cooldowns limit which bullish or bearish traps qualify. Bear traps trigger long entries, while bull traps trigger shorts, provided the script finds a suitable opposing fair value gap as a profit target. Stops sit beyond the trap candle with an ATR-based buffer.

The script stores detected gaps and scans backward for the nearest qualifying target: a bearish gap above price for longs or a bullish gap below price for shorts. The accompanying commentary identifies likely weaknesses, including trades during choppy conditions, absent higher-timeframe or structure filters, and ambiguity in defining the nearest gap. It provides no performance results. The rules are presented as a basic implementation, with the author cautioning that unfiltered trap signals may lead to excessive trading.

Key ideas

• A trap is a break beyond a recent swing high or low followed by a close back across that level, subject to a minimum wick proportion.
• Separate cooldowns prevent repeated signals of the same trap direction from triggering too close together.
• Bear traps open longs and bull traps open shorts, with stop levels buffered from the trap candle using ATR.
• Profit targets use the nearest stored fair value gap in the opposing direction.
• The described rules lack a directional filter and may overtrade in choppy markets.

Tags

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