Trading Fair Value Gap Retests with Trend and ATR Filters

Summary

This framework turns three-candle Fair Value Gap patterns into trend continuation setups. It records the latest bullish or bearish gap, then waits for price to revisit its boundary and close back beyond it. A 50-period exponential moving average filters direction: longs require price above it and shorts require price below it. The strategy enters only when its position is flat or opposite to the new signal, allowing reversals as well as new trades.

Stops are set using the average entry price plus or minus an ATR multiple, while targets use a configurable risk-reward multiple. The document provides the rules and source code, but no performance results or market-by-market evaluation. It retains only the latest gap of each direction and uses a simplified gap and retest definition, so its behavior may differ from other Fair Value Gap methods. The author presents it as an educational research example; independent testing across assets and timeframes is needed before drawing conclusions.

Key ideas

• The strategy identifies bullish and bearish gaps from the relationship between the current bar and the bar two periods earlier.
• It waits for a retest and a close back beyond the gap boundary before considering an entry.
• A trend EMA filters long and short signals by price position.
• ATR-based stops and risk-reward targets adapt exit distances to current volatility.
• The document provides rules and code but no performance evidence.

Tags

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