NASDAQ 5m Fair Value Gap Strategy
I was recently testing some stuff regarding fair value gaps and discovered something that was at least mildly interesting
I won’t go into what a fair value gap is in this post, but if you don’t know it, use our good friend Google
The rules are as follows:
1. Place a limit order at the top (buy) or bottom (sell) of the first 5-minute fair value gap triggered after the market opens
2. Place your stop loss below/above the candle containing the FVG candle or the previous candle (this part can be a bit subjective, but sometimes one of them clearly makes more sense. In 80% of the cases I would place it below/above the candle before the FVG candle)
3. The target risk-reward ratio is 1:2
4. If neither target price nor stop loss is reached, we will exit 1 hour before closing
Example from this Monday (August 14, 2023):
Now to interest you more, here are the backtest results for the full year 2020:
The problem now is that using only these very basic and non-optimized rules, we may not make significant profits again in 2023. Therefore, I challenge you to find solutions to filter out bad transactions. Some examples of taking FVG only after a certain time, filtering trend direction, using midway fill only on FVG, not trading on stacked FVG…
Get creative
Have a nice day and good transactions!
PS: I just blindly backtested 2020 mechanically. I have been trading for many years and have a good understanding of market structure and the Elliott Wave Principle. If I trade based on my knowledge, I believe my PF can reach above 3
I won’t go into what a fair value gap is in this post, but if you don’t know it, use our good friend Google
The rules are as follows:
1. Place a limit order at the top (buy) or bottom (sell) of the first 5-minute fair value gap triggered after the market opens
2. Place your stop loss below/above the candle containing the FVG candle or the previous candle (this part can be a bit subjective, but sometimes one of them clearly makes more sense. In 80% of the cases I would place it below/above the candle before the FVG candle)
3. The target risk-reward ratio is 1:2
4. If neither target price nor stop loss is reached, we will exit 1 hour before closing
Example from this Monday (August 14, 2023):
Now to interest you more, here are the backtest results for the full year 2020:
The problem now is that using only these very basic and non-optimized rules, we may not make significant profits again in 2023. Therefore, I challenge you to find solutions to filter out bad transactions. Some examples of taking FVG only after a certain time, filtering trend direction, using midway fill only on FVG, not trading on stacked FVG…
Get creative
Have a nice day and good transactions!
PS: I just blindly backtested 2020 mechanically. I have been trading for many years and have a good understanding of market structure and the Elliott Wave Principle. If I trade based on my knowledge, I believe my PF can reach above 3
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