Three-Line Strike Entries Filtered by ADX and Managed with ATR

Summary

This trend-following strategy looks for a three-line strike reversal pattern: three candles in one direction followed by a larger candle in the opposite direction. It takes bullish or bearish signals only when the ADX reading is above a threshold, intended to screen for stronger trends. The source sets exits using ATR multiples: the target is two ATRs from the signal close and the stop is one ATR away. The supplied defaults use 14-period ATR and ADX calculations and an ADX threshold of 25.

The document identifies false breakouts in ranging conditions, slippage from market entries, and sensitivity to indicator settings as limitations. It gives backtest market and timeframe details but no performance statistics, so it does not show whether the filter or exit distances improve results. The pattern checks in the source require the final candle to be larger than the immediately preceding candle and opposite in color; they do not verify full engulfment of its price range, despite the prose describing an engulfing candle. Testing across instruments and market regimes would be needed to assess robustness.

Key ideas

• The entry pattern combines three same-color candles with a larger opposite-color candle.
• Signals are allowed only when ADX exceeds the configured trend-strength threshold.
• ATR-based exits place the target farther from entry than the stop under the stated defaults.
• The source checks candle body size and color but does not require full range engulfment.
• No performance statistics are supplied, and ranging markets and execution costs remain concerns.

Tags

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