Fair Value Gap
BullishContinuationIntermediateA move so fast it leaves a gap between candles. Buy when price comes back to it.
Verdict: SkipBitcoin 4H: 279 trades, won 63%, avg trade +0.1% vs random day +0.1%. Backtest
One huge green candle. Look at the candle before it and the candle after it: their wicks don't even touch.
step 1/6
Trade rules
| Direction | Long (buy) |
|---|---|
| Entry | Three candles where candle 3's low is above candle 1's high by at least 0.2 ATR, and candle 2 is green with a body of at least 1 ATR. Price comes back into the gap within 20 candles; within 3 candles after that, a candle CLOSES back above the gap's top. |
| Cancelled if | Price trades below the bottom of the gap before the entry, or doesn't come back into the gap within 20 candles. |
| Target | Back to the high, projected from the breakout |
3 common mistakes
- Buying the moment price touches the gap, with no sign that buyers are there.
- Marking gaps inside one candle's wick. The gap is between candle 1 and candle 3.
- Treating an old gap like a fresh one. After weeks, nobody is waiting there.
Backtest
same rules every time · equal size · no fees · method| Market | Trades | Won | Avg trade | Random day |
|---|---|---|---|---|
| Bitcoin · 4H · 2017-2026 | 279 | 63% | +0.08% | +0.13% |
| US large caps (50) · 1D · 2016-2026 | 1106 | 69% | +0.28% | +0.33% |
Verdict: SkipIt made money, but less than buying on a random day.
pattern +23%random +36%
pattern +305%random +360%