Three-Bar Micro-Channel Scoring with Risk-Based Position Sizing
Summary
This price-action strategy identifies three consecutive bars moving in one direction, then scores the pattern using features such as bar size consistency, wick length, gaps, close relationships, and higher lows or lower highs. Signals pass a preset score threshold, and the method describes estimating a win probability from a stated base rate plus factor contributions. Entries are placed at a target bar’s high or close for longs, with the bearish setup using the corresponding direction. Stops reference the opening price of the first bar, targets use a risk-reward multiple, and trade size is calculated from account equity and a fixed per-trade risk allowance. It also describes trailing exits, entry time restrictions, and end-of-day closure.
The document gives numerical assumptions for its score, probability, and risk settings but provides no backtest period or measured results in the available material. Its probability figures are therefore described assumptions, not validated evidence. It flags risks from factor overfitting, parameter sensitivity, slippage in illiquid markets, sparse signals, and poor performance in choppy or highly volatile conditions. Suggested extensions include testing across markets and timeframes, regime filters, multi-timeframe confirmation, and empirical factor weighting.
Key ideas
- The setup begins with three consecutive bullish or bearish bars forming a directional micro-channel.
- Pattern quality is scored using bar shape, wick, gap, and price relationship factors.
- A score threshold triggers a trade, while the probability estimate depends on stated assumptions rather than reported validation.
- Stops, targets, trailing exits, and end-of-day closure define the trade management framework.
- Position size scales with account equity and the chosen per-trade risk fraction.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.