Candlestick Reversal Entries with a Moving Average Short Filter

Summary

This short-term reversal approach identifies runs of three candles in the same direction, then looks for a large candle move as an entry trigger. After three down candles, a sufficiently large down candle prompts a long entry; after three up candles, a large up candle can prompt a short entry if price is below a simple moving average. Longs exit when price rises above the previous bar’s high, while shorts exit below the previous bar’s low. Users can adjust the move threshold and moving-average length.

The document lists BTC/USDT futures backtest settings for a brief period but reports no results, and the provided code does not include performance evidence. Although introduced as a dual-moving-average strategy, the described method uses a single SMA filter for shorts and candle patterns for both entries. Failed reversals, whipsaws, and repeated signals can cause losses; explicit stop-loss rules and additional filters are proposed but not tested.

Key ideas

• Three consecutive candles in one direction establish the setup for a possible reversal.
• A large move on the final candle triggers a long after a down sequence or a short after an up sequence.
• Short entries require price below a configurable simple moving average; exits use the prior bar’s extreme.
• The supplied logic uses one SMA filter rather than a dual-moving-average crossover.
• The backtest settings contain no reported results, and failed reversals can lead to losses.

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