Inverse-Reaction Trading After Price Shocks

Summary

IREA is an automated countertrend strategy based on the idea that unusually large price moves may be followed by movement in the opposite direction. It uses an InverseReaction indicator and enters against the shock on the next bar, provided the bar size falls between configured minimum and maximum thresholds. The document describes a default stop loss, take profit, slippage allowance, and a confidence setting, but gives no measured performance figures in the text.

The example test covers EUR/USD on a daily chart from 2012 to 2013, with stated leverage and starting capital. The author warns that the strategy can behave poorly after major economic events that change market expectations, and recommends avoiding such periods. The system is presented as a demonstration of the indicator in isolation, with a suggestion that it may be more useful alongside other analysis tools. Its narrow shock filters and historical example do not establish robustness or suitability for live trading.

Key ideas

• The strategy enters against price shocks when their bar sizes pass configured minimum and maximum filters.
• The next bar is used to initiate the inverse-direction trade.
• The described parameters include stop loss, take profit, slippage, and indicator confidence settings.
• The author warns that major economic events can make the approach unstable.
• The cited EUR/USD daily test does not provide performance statistics in the text.

Tags

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