Fair Value Gap strategy — on every asset
A Fair Value Gap is a three-candle price imbalance — a gap left between the first candle's high and the third candle's low, confirmed at the third candle's close. This buys when price later returns to the top edge of an unfilled gap (a 'mitigation'), after first leaving it, and goes flat when price closes back above the gap or trades below its lower edge. A mean-reversion rule around the imbalance; it is pure price geometry and makes no claim about who created the gap.
When price is stretched from its mean — By construction it waits for price to leave a confirmed gap and then return to its edge, re-deciding only on that return, on the gap filling through, or on price closing back above it.
In a sustained one-way move — The gap is a description of past price, not a prediction: an unfilled gap need not fill, and a gap price returns to can break straight through as readily as it bounces. Mechanically buying every return churns many trades and, once costs are counted, this rule usually lags simply holding.
Whether that behaviour produced excess return on your asset over your window is exactly what your backtest measures — we publish no profit claims.
How it works — step by step
- • Entry — Go long when price returns to touch the top edge of an unfilled bullish gap, after first leaving it — treating the imbalance as a level price may respect.
- • Exit — Go flat when price closes back above the gap (the move up resumed) or trades below the gap's lower edge (the imbalance filled through).
- • Fills, scoring & data — Every backtest fills at the next real open and scores on the real price against a real buy-and-hold, never a smoothed or derived series; a gap is confirmed only at the third candle's close and is dropped after a set number of bars.
Most of these did not beat buy & hold — but a real few did, and finding out which is the whole point. This one strategy was tested on 47 different assets. With that many attempts, some will beat buy & hold by chance alone — which is why these are listed neutrally, not ranked by which ones came out ahead. To see whether any single result survives scrutiny, run the out-of-sample, walk-forward and multiple-testing checks on its backtest.
Of the 47 with enough data to judge, 10 beat buy & hold. Results are simulated backtests over the last ~5 years (less for younger assets), shown whole — losses included — not live or future performance. These are famous names that still trade today. Names that delisted, went bankrupt or were wound down aren't in the set (survivorship bias) — and that history isn't available from the free public data this tool runs on — so this rate isn't a representative base rate for every stock or ETF that has ever traded.
Listed in a neutral catalog order — not ranked by performance. Combinations we can't judge yet — too little data — are grouped separately below.
Here, “beat” means only a higher total return than buy & hold over this one past window — not risk-adjusted, not luck-checked. The out-of-sample, walk-forward and luck checks live on each individual backtest.
Past performance is not a reliable indicator of future results. This is an educational, analytical tool — not investment advice, and not a recommendation to buy or sell anything. You make all decisions and execute on your own broker.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
On the 47 assets with enough data to judge, the same rule swung from +206 pts vs buy & hold on Ethereum to -898 pts on Nvidia. The typical (median) result was -71.2 pts — and even across these runs, the deepest drawdown you'd have sat through was -91% on Avalanche.
That range is the whole point: one rule is not universally good or bad — it depends entirely on the asset, and with 47 tried, some beat by chance. Shown to reveal the variation, not to pick one to trade.
Fair Value Gap on stocks
Fair Value Gap on etfs
Fair Value Gap on commodities
Fair Value Gap on crypto
Backtesting is one stage of preparing to trade, not the finish line. The full discipline runs five: Understand, Test, Stress-test, Forward-test, then Decide — eyes open. Most ideas should die in the first three, and every stage is a place to stop, for free — but the rare idea that survives all five is a real edge you can finally trust with money.