Reversing Large Candles with Range-Based Entry Filters
Summary
This strategy looks for unusually wide candles and takes the opposite side: it shorts qualifying bullish candles and buys qualifying bearish candles. A candle qualifies when its high-to-low range exceeds a multiple of the recent average range and its body is large enough relative to its range, filtering out small-bodied candles. The parameters include the lookback period, range multiple, body threshold, trade direction, and optional stop and target settings.
The document presents the setup as a way to catch reversals, but provides no performance results to support that claim. Large candles can signal continued momentum or event-driven volatility rather than exhaustion, so countertrend entries may be vulnerable to follow-through. It recommends testing filters and parameters across markets. Exit details are not fully consistent: the overview describes stops around the signal candle, while the source calculates exits from entry price using the signal candle’s range; take-profit sizing is configurable in the source. Backtesting should establish how these rules behave in practice.
Key ideas
- Qualifying candles must exceed a multiple of recent average range and meet a minimum body-to-range threshold.
- The strategy shorts large bullish candles and buys large bearish candles, betting on a reversal.
- Optional exits use the signal candle’s range to size stop and target distances from the entry price.
- Large candles may mark continuation or stop-driven volatility, so reversal signals can fail.
- The document gives no measured performance evidence and recommends parameter testing.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.