Fair Value Breakout Strategy by @tradingbauhaus

2024년 12월 28일

The **Breakaway Fair Value Gaps (BFVG) Strategy** is a trading approach designed to identify and capitalize on significant price gaps that occur within the context of a strong trend. These gaps, known as Fair Value Gaps (FVGs), represent areas where the price moves sharply, leaving behind an imbalance between supply and demand. When these gaps occur during a breakout or a strong trend continuation, they are referred to as **Breakaway Fair Value Gaps (BFVGs)**. This strategy uses these gaps as key levels for entering trades and managing risk.

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### **Key Concepts**
1. **Fair Value Gap (FVG)**:
- A FVG occurs when the price moves sharply, leaving a gap between the high/low of previous candles and the current candle.
- It represents an imbalance in the market where buyers or sellers are overwhelmingly dominant.

2. **Breakaway Fair Value Gap (BFVG)**:
- A BFVG is a FVG that occurs during a strong trend or breakout, signaling potential continuation of the trend.
- It acts as a key level for entering trades in the direction of the trend.

3. **Mitigation Levels**:
- These are price levels where the market might retrace to "fill the gap" before continuing in the direction of the trend.
- The strategy monitors these levels to determine if the gap is still valid or if it has been mitigated.

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### **Strategy Rules**
#### **Entry Conditions**
1. **Bullish BFVG**:
- A bullish BFVG occurs when:
- The current low is higher than the high of two candles ago (`low > high[2]`).
- The close of the previous candle is higher than the high of two candles ago (`close[1] > high[2]`).
- **Entry**: Go long (buy) when a bullish BFVG is detected and the price has not yet mitigated the gap.

2. **Bearish BFVG**:
- A bearish BFVG occurs when:
- The current high is lower than the low of two candles ago (`high < low[2]`).
- The close of the previous candle is lower than the low of two candles ago (`close[1] < low[2]`).
- **Entry**: Go short (sell) when a bearish BFVG is detected and the price has not yet mitigated the gap.

#### **Exit Conditions**
1. **Stop Loss**:
- The stop loss is placed at a fixed percentage below the entry price for long trades (`stop = close * (1 - stopLossPerc / 100)`).
- For short trades, the stop loss is placed at a fixed percentage above the entry price (`stop = close * (1 + stopLossPerc / 100)`).

2. **Take Profit**:
- The take profit is placed at a fixed percentage above the entry price for long trades (`limit = close * (1 + takeProfitPerc / 100)`).
- For short trades, the take profit is placed at a fixed percentage below the entry price (`limit = close * (1 - takeProfitPerc / 100)`).

#### **Mitigation Levels**
- If the price retraces and closes within the gap (mitigates the FVG), the gap is considered invalid, and the strategy stops monitoring it.

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### **Visualization**
- **BFVG Boxes**:
- Bullish BFVGs are highlighted with a green box.
- Bearish BFVGs are highlighted with a red box.
- **Mitigation Lines**:
- Horizontal lines are drawn at the high/low of the gap to indicate the mitigation levels.

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### **Dashboard**
The strategy includes a dashboard that displays key statistics:
1. **Total BFVGs Detected**:
- The number of bullish and bearish BFVGs identified.
2. **Mitigation Percentage**:
- The percentage of BFVGs that have been mitigated.
3. **Average/Median Duration**:
- The average or median number of candles it takes for a BFVG to be mitigated.

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### **How It Works**
1. **Trend Identification**:
- The strategy uses a moving window of `length` candles to determine the current trend (highs and lows).
2. **Gap Detection**:
- It scans for FVGs that meet the criteria for BFVGs (strong trend context).
3. **Trade Execution**:
- Enters trades in the direction of the BFVG and manages risk using stop loss and take profit levels.
4. **Mitigation Monitoring**:
- Tracks whether the price retraces to fill the gap, invalidating the BFVG.

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### **Advantages**
1. **Trend-Following**:
- The strategy capitalizes on strong trends, which often lead to significant price movements.
2. **Clear Entry and Exit Levels**:
- BFVGs provide well-defined levels for entering trades and managing risk.
3. **Flexibility**:
- Parameters like `length`, `stopLossPerc`, and `takeProfitPerc` can be adjusted to suit different trading styles.

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### **Example**
- **Bullish BFVG**:
- The price is in an uptrend. A bullish BFVG is detected, and a long trade is entered.
- The stop loss is placed 1% below the entry price, and the take profit is placed 2% above.
- **Bearish BFVG**:
- The price is in a downtrend. A bearish BFVG is detected, and a short trade is entered.
- The stop loss is placed 1% above the entry price, and the take profit is placed 2% below.

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### **Conclusion**
The **Breakaway Fair Value Gaps Strategy** is a systematic approach to trading strong trends by identifying and exploiting price gaps. It combines clear entry signals with robust risk management, making it suitable for traders who prefer trend-following strategies. By monitoring mitigation levels and using a dashboard for performance tracking, the strategy provides a comprehensive framework for trading BFVGs.