Three-Candle Reversals with ATR Trailing Profit Exits

Summary

This reversal system looks for three consecutive candles in one direction followed by a large-bodied candle in the opposite direction. It enters at the reversal candle’s close, using the specified 3% minimum body threshold. For exits, the article describes a 14-period ATR trailing mechanism that activates after a favorable move of 1.5 ATR and closes after a 1 ATR retreat from the best price. The source also permits pyramiding and charges a stated commission; the backtest settings identify ETH/USDC futures over a long period using five-day bars. No performance results are included.

The trailing exit adapts its distance to volatility, but it does not protect the position before the activation threshold is reached. The prose and source also differ on position sizing: the article says each trade uses 50% of equity, while the code specifies 1%. The source calculates trailing reference levels from recent closing prices, which may not implement the prose’s described best-price tracking exactly. The simple candle pattern can produce frequent or mistimed entries, especially in strong trends, and pyramiding can magnify losses. The document proposes initial stops, filters, and additional validation, but supplies no evidence that these changes improve results.

Key ideas

• A long setup follows three bearish candles with a sufficiently large bullish candle; the short setup reverses those directions.
• The strategy enters at the reversal candle’s close and uses ATR-based thresholds for a trailing exit.
• The trailing mechanism activates only after a favorable price move, leaving early adverse movement without a fixed stop.
• The article’s stated equity allocation conflicts with the position sizing in the source code.
• The document provides backtest settings but no reported performance results.

Tags

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