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.
---
### **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.
---
### **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.
---
### **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.
---
### **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.
---
### **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.
---
### **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.
---
### **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.
---
### **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.