Candlestick Momentum Breakouts with Three-Bar Highs and Lows

Summary

The article explains momentum trading as taking a position in the direction of recent price movement and holding it until signs of reversal. Its worked example applies this idea to five-minute BTCUSDT candles: a close above the prior three-candle high triggers a long, while a close below the prior three-candle low triggers a short. Stop-loss and take-profit thresholds determine exits, and a spreadsheet tracks entries, trade status, realized profit or loss, and cumulative results. The high and low lookback and exit limits are configurable.

For the stated sample, covering December 12–22, 2021, the document reports $41,850 in gains from take-profit exits and $35,405 in losses, for net profit of $6,445; it also gives an average profit of $13.45 per trade. The example assumes execution at candle closes and zero transaction costs, and ignores bid-ask spreads. It does not provide a robust out-of-sample test or evidence that the settings generalize, so the reported spreadsheet outcome should not be read as proof of a durable edge.

Key ideas

• Momentum strategies seek to continue participating in an existing upward or downward price move until signs of reversal appear.
• The example signals long entries above the previous three-candle high and short entries below the previous three-candle low.
• Stop-loss and take-profit thresholds govern exits, while the spreadsheet records trade outcomes and cumulative profit or loss.
• The BTCUSDT example reports a net profit of $6,445 for its stated period and assumptions.
• Ignoring fees and spreads and assuming candle-close execution limits how closely the example represents live trading.

Tags

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