Candlestick Shadow Reversals with Size Filters and Bracket Exits

Summary

This short-term strategy treats long candlestick shadows as possible reversal signals. It measures the candle body and upper and lower shadows, then compares each shadow with the body using an adjustable multiplier. A minimum candle range filter excludes small bars. The described rules enter short after a long upper shadow and long after a long lower shadow, with stop-loss and take-profit exits.

The document gives parameter settings and published backtest settings for BTC_USDT futures on Binance over a short October 2023 interval, but reports no performance results. It recommends filtering signals with trend or other indicators and tuning parameters by market. Reversal patterns can fail, especially when they run against the prevailing trend. The source code’s entry orders use stop prices beyond the candle’s low or high, so the implementation may not match the prose’s description of entering at the candle close.

Key ideas

• Compare each candle shadow with its body using a configurable multiplier to identify possible reversals.
• Filter out candles whose total range is below a minimum threshold.
• The stated rules go short after a qualifying upper shadow and long after a qualifying lower shadow.
• Use stop-loss and take-profit exits, and consider trend filters because shadow reversals can fail.
• The published settings describe a short BTC_USDT futures backtest but provide no performance results.

Tags

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