Testing a Candle-Count Mean-Reversion Strategy Across Instruments

Summary

This article proposes a self-adapting strategy based on the observed tendency for bullish and bearish candles to occur in roughly equal numbers over large samples. It presents counts from selected forex, equity, and other market data across several timeframes as evidence for that approximate balance. The author hypothesizes that deviations in a rolling sample may eventually return toward equilibrium, with the speed of that return varying by instrument.

The proposed test scans windows of different lengths, identifies when one candle direction exceeds a threshold, and trades in the opposite direction. It opens additional positions on subsequent bars and closes the series when a specified exit condition is met. The author reports favorable monthly returns in personal tests across currency pairs and timeframes, but does not provide enough detail here to independently assess costs, drawdowns, selection effects, or robustness. The article also acknowledges that the entry can be spread over time and that unmodeled factors may reduce stability; the method is an initial hypothesis, not evidence of universal profitability.

Key ideas

• The author hypothesizes that bullish and bearish candle counts approach balance over large samples.
• The article gives sample candle-count measurements from several instruments and timeframes as support for approximate balance.
• The proposed strategy trades against a sufficiently large local imbalance in candle direction.
• It scans variable-length windows and adds positions on later bars until a series exit condition occurs.
• Reported test returns are the author's own results, and the article acknowledges stability limits and unaccounted market factors.

Tags

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