Testing a Three-Candle Outside-Down Reversal Pattern

Summary

This backtest encodes a three-candle bearish reversal setup. It looks for an upward first candle, followed by a bearish candle whose body engulfs the prior body, then a third bearish candle that closes below the previous candle’s low. When the pattern is recognized, the strategy opens a long position according to the script’s entry logic, and it tracks the entry price as a reference for configurable profit and stop thresholds.

The script closes positions when its tracked setup is cleared or either threshold is reached, and it changes bar colors to mark pattern and position states. Despite the bearish pattern name, its coded trade direction is long, a discrepancy users should inspect before interpreting results. The supplied document contains no backtest metrics, instrument, or timeframe, and its pip-based thresholds may not transfer across markets. It is presented for educational use, so the pattern definition alone is not evidence of a profitable edge.

Key ideas

• The setup requires a bearish engulfing second candle after a bullish first candle, followed by a lower bearish close.
• The code opens a long trade after identifying the named bearish reversal pattern.
• Profit and stop thresholds are configurable in pips and are checked against subsequent highs and lows.
• Bar coloring is used to mark the pattern and strategy state.
• The document reports no performance metrics or market-specific validation.

Tags

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