Reversal Entries from Candle Shadows and ATR Filters

Summary

This short-term strategy uses candle shadow proportions to identify directional signals, then enters against the inferred direction. It calculates upper and lower shadows, compares the larger shadow with the candle’s full high-low range, and requires that range to exceed a fraction of ATR. A lower shadow signal triggers a limit long entry near the middle of the shadow; an upper shadow signal triggers a limit short entry. The published settings show BTC/USDT futures tested on a daily chart with hourly base data over roughly one year.

Exits use a stop offset from the average entry price and a take-profit distance twice as large. The description presents this as a 2:1 reward-to-risk setup, but reports no performance results. It warns that failed signals, sharp price moves, and parameter sensitivity can cause losses, and suggests testing different shadow, ATR, and exit settings. The approach is described as suitable for short-term, volatile stocks, while the listed backtest uses crypto futures, so evidence of suitability across markets is not provided.

Key ideas

• Candle shadow proportions are used to infer a short-term direction, with entries placed against that signal.
• A candle’s high-low range must exceed 0.75 times ATR to qualify for entry.
• The strategy places limit orders around the midpoint of the selected shadow.
• The take-profit distance is twice the stop distance, but no backtest performance figures are reported.
• Failed breakouts, volatility, and parameter choices are stated risks.

Tags

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