Three-Bar and Four-Bar Continuation Plays with Donchian Breakouts

Summary

This strategy formalizes bullish and bearish three-bar and four-bar continuation setups. Each begins with a wide, strong-bodied bar that closes beyond a prior Donchian-channel boundary. One or two smaller consolidation bars follow, holding near the initiating bar’s extreme; a trigger bar must then extend the move by closing and reaching beyond the preceding bars. The script includes adjustable thresholds for bar size, body fraction, and relative equality, as well as channel lookback and offset settings.

Entries are paired with a stop near the consolidation bars and a profit target set as a multiple of the entry-to-stop distance. The accompanying description says these setups are commonly applied on short intraday charts and advises avoiding trades with nearby resistance. The document presents code and rules, but no performance results or market-by-market validation. The implementation should be reviewed carefully: its short-entry condition for the three-bar bearish setup passes the bullish setup as the order’s `when` condition, which may prevent the intended short order from being placed.

Key ideas

• A qualifying ignition bar must be unusually wide and have a substantial body relative to its range.
• The setup requires a breakout beyond a prior Donchian high or low, followed by one or two smaller holding bars.
• A continuation trigger must extend the move across recent closes and highs before entry.
• Stops are placed around the consolidation bars, and targets use a configurable multiple of the stop distance.
• The script provides no reported backtest evidence, and its three-bar short order condition appears inconsistent with the bearish setup.

Tags

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