A 1-2-3 Candle Pattern Strategy with EMA and MACD Filters

Summary

This strategy combines a four-candle 1-2-3 reversal setup with moving-average trend filters and MACD momentum confirmation. A long signal requires a bullish first candle, a bearish second candle, a third candle closing above the first candle’s close, and a fourth closing above the third candle’s close. The short setup reverses those conditions. Entries also require price to be above or below both the 9- and 20-period EMAs and MACD to agree with the trade direction.

The source specifies a position quantity of five and closes a long on a bearish candle or a short on a bullish candle; it also describes closing on an opposite signal. Published backtest settings name BTC/USDT futures over a short historical window, but provide no performance results. The strategy uses one timeframe and lacks explicit stop-loss or position-sizing rules beyond the stated quantity. Choppy conditions may produce false signals, and the document says the parameters have not been optimized, so backtesting and validation are needed.

Key ideas

• The entry pattern uses four candles, with the fourth candle extending beyond the third candle’s close in the signal direction.
• Long and short entries require price to align with both the 9- and 20-period EMAs.
• MACD line position relative to its signal line confirms momentum direction.
• The source exits positions on a candle closing against the position, while the description also cites opposite signals.
• The strategy has no explicit stop-loss or position-sizing method and reports no backtest performance results.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.