Detecting Two-Candle Reversals at Matching Extremes
Summary
The indicator identifies a two-candle pattern in which consecutive candles have opposite directions and share an extreme. A bullish signal occurs when a down candle is followed by an up candle with the same low; a bearish signal occurs when an up candle is followed by a down candle with the same high. The output assigns opposite directional values to the two patterns.
The author relates the setup to a Slingshot strategy and suggests that trend filters and candle size could help refine its use. No backtest or performance evidence is provided. The document cautions that the related strategy is difficult to backtest when price data cannot establish whether a stop or target would have been reached first. The exact matching-high or matching-low condition may also be sensitive to market data precision, and the pattern alone does not define entries, exits, or risk controls.
Key ideas
- A bullish pattern is a down candle followed by an up candle with an identical low.
- A bearish pattern is an up candle followed by a down candle with an identical high.
- The indicator reports opposite directional values for bullish and bearish patterns.
- Trend filters and candle size are suggested as possible refinements.
- The document gives no performance results and notes uncertainty in sequencing stop and target hits during backtesting.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.