Classifying Candle Range Patterns with ATR-Based Thresholds
Summary
The document defines a Candle-Range Theory toolkit for classifying completed bars as large-range, small-range, inside, or outside candles. Large and small ranges are measured against an arithmetic average of recent true ranges, which includes gaps; inside and outside bars are identified by comparing their high and low with the preceding bar. A priority order makes the categories mutually exclusive, and processing only closed bars is intended to keep signals stable rather than repainting.
The article describes an indicator for chart highlighting and an expert advisor for alerts, alongside a reusable classification component. It explains configurable thresholds and display options, and presents the toolkit as a way to standardize volatility observations for discretionary analysis or further strategy development. The excerpt emphasizes implementation design but provides no trading performance tests or evidence that any category predicts returns. Interpretations linking expansion, compression, or engulfing ranges to market participation are hypotheses; the patterns alone do not specify trade selection, exits, or risk controls.
Key ideas
- True range captures gaps by including the distance from the prior close.
- Large-range and small-range bars are defined using configurable multiples of recent average true range.
- Inside and outside bars are determined by comparing the current range with the preceding candle.
- The classification checks range magnitude before containment patterns to keep categories exclusive.
- Signals are calculated on closed bars, while the toolkit itself does not establish that the patterns are profitable.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.