Three-Candle Reversals Filtered by Moving Averages and Trend State

Summary

This short-term strategy looks for three consecutive candles in one direction followed by an engulfing candle in the opposite direction. After three bearish candles, the bullish engulfing pattern can trigger a long entry; after three bullish candles, a bearish engulfing pattern can trigger a short. Moving-average relationships filter direction, while a linear-regression measure is intended to distinguish trending from ranging conditions. The document also describes an optional moving-average crossover entry and ATR-based stop placement, with profit targets set to a stated 1:3 risk-reward ratio.

The source commentary says the method was designed mainly for same-day SPY option scalping and reports that it was backtested using only one month of data. The published settings instead specify a one-month BTC/USDT futures backtest, underscoring uncertainty about how the described option setup maps to those settings. No performance statistics are provided. The document cautions that short-term reversals may conflict with longer trends, candle patterns can mislead, and the limited sample leaves live performance uncertain.

Key ideas

• The entry pattern is three consecutive candles followed by an engulfing candle in the opposite direction.
• Moving averages filter trade direction, and linear regression is used to avoid ranging conditions.
• The described exit framework uses ATR-informed stops and a 1:3 risk-reward target.
• Opposing candle patterns can also close trades before a stop or target is reached.
• The source describes a one-month backtest and gives no performance statistics, limiting conclusions about reliability.

Tags

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