ATR Displacement Pullbacks for Trend Continuation

Summary

This swing strategy looks for continuation after an unusually large directional candle. It defines bullish or bearish displacement by comparing the candle body with a multiple of the 14-period ATR, then tracks the displacement bar's low or high. Within a limited number of bars, price must hold above the bullish displacement low or below the bearish displacement high. A candle in the original direction then triggers an entry, provided the strategy is flat and the cooldown has elapsed.

The stop is placed at the displacement extreme, and the profit target is set at a fixed reward-to-risk multiple. Position size is calculated from a chosen percentage of strategy equity divided by the entry-to-stop distance. The accompanying description favors higher timeframes and names EURUSD and GBPUSD as examples, while cautioning that lower timeframes may need adjustment. The document supplies no test results, so it does not establish profitability or robustness across markets; actual risk can also differ from the sizing calculation if fills or instrument conventions vary.

Key ideas

• A candle body exceeding an ATR threshold marks directional displacement.
• The setup waits for a pullback that preserves the displacement bar's extreme, followed by a directional candle.
• Stops use the displacement high or low, while targets use a fixed reward-to-risk multiple.
• Position quantity scales with equity risk and the distance between entry and stop.
• The author describes the model for higher-timeframe swing trading but provides no performance evidence.

Tags

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