Three-Bar Higher Lows and Lower Highs for Trend Following

Summary

This strategy identifies directional price sequences from highs and lows over consecutive bars. Three successive higher lows increase an upward counter, while three successive lower highs increase a downward counter; the opposite counter resets, and other bars reset both. A long or short signal is defined when its counter equals three. The source sets a stop distance of 2 units and a profit target of 6 units, yielding a stated 1:3 distance ratio. The listed test uses daily BTC/USDT futures data over a multi-year interval, but no returns, drawdowns, or other performance evidence are provided.

The method is intended to follow established trends and may be vulnerable to repeated false signals in sideways markets. Fixed stop and target distances may not suit different instruments or volatility conditions, and slippage can make actual fills differ from signal prices. There is also an implementation detail to check: because the counter can continue above three during a continuing sequence, a signal occurs only on the bar where it first reaches exactly three. The document suggests volatility filters, additional trend or volume confirmation, and position sizing as possible refinements, without testing them.

Key ideas

• Three consecutive higher lows increment an upward counter, while three lower highs increment a downward counter.
• A signal occurs when either counter equals three, with fixed stop and profit distances supplied as inputs.
• The specified stop and target distances are 2 and 6 units, respectively.
• The approach may generate repeated losses in sideways markets, and fixed distances may not fit all conditions.
• The published backtest settings do not include performance results, and the exact-three trigger merits implementation review.

Tags

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