Decaying Delta Imbalances with Reversal Triggers and ATR Exits

Summary

This strategy uses candle direction multiplied by volume as a proxy for signed delta. It accumulates separate bullish and bearish imbalance pools, subtracts opposing candle activity from each pool, floors the values at zero, and applies a decay factor so older imbalance fades. Each pool is normalized by the recent average absolute delta. When one normalized pool exceeds a threshold and an opposite-direction candle appears, the script enters in the direction of that counter candle, aiming to trade a possible resolution of prior imbalance.

The code adds exits based on the average true range, placing stop and target distances at different multiples of that measure. The description recommends low-timeframe use, but reports no backtest results or evidence supporting that restriction or the strategy’s profitability. Its delta is only a candle-based proxy and cannot distinguish buyer-initiated from seller-initiated trades within a bar. Signal behavior also depends on the decay, threshold, normalization window, market, and execution assumptions, so the setup requires rigorous testing before practical use.

Key ideas

• The strategy estimates signed delta from candle direction and volume.
• Opposing candle activity reduces accumulated bullish or bearish imbalance, which also decays over time.
• A threshold breach followed by an opposite-direction candle triggers an entry.
• Average true range sets stop and target distances for the positions.
• The order-flow estimate is candle-based, and no results are provided to validate the strategy.

Tags

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