Candlestick Reversal Entries with an EMA Trend Filter and ATR Exits

Summary

This script looks for possible reversals using candle shapes it labels as hammer-like or stick-like, together with the colors and relative highs, lows, opens, and closes of neighboring bars. Long entries require a bullish pattern while price is above a long-period EMA; short entries use the inverse pattern below the EMA. The script sets a stop beyond the prior candle’s range and a limit target based on that range, with an ATR adjustment.

The source code is the main evidence: it specifies the pattern conditions, trend filter, and volatility-scaled exit distances. A release note says the EMA filter was added, though its stated period differs from the period used in the code. No backtest results, instrument, or timeframe are provided, so effectiveness cannot be assessed from this document. The author advises tuning parameters to the instrument. The rules are also highly dependent on the exact candle definitions and may miss trades or react poorly to changing volatility and market structure.

Key ideas

• The script defines reversal patterns using candle color, candle range, and relationships between adjacent bars.
• Long setups require price above an EMA trend filter, while short setups require price below it.
• Stops and profit limits are set using the previous candle’s range with an ATR adjustment.
• The document provides rules but no backtest evidence or instrument-specific performance results.
• The EMA period described in the release note does not match the period specified in the code.

Tags

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