Trading Long-Leg Doji Breakouts with ATR Filtering and SMA Exits
Summary
The strategy seeks directional moves after a long-leg doji, a candle characterized by a very small body and long upper and lower wicks. It defines the body as no more than 0.1% of the candle range and requires each wick to be at least twice the body size. An ATR-based filter is intended to screen out patterns whose wicks are too small relative to prevailing volatility. After a qualifying candle appears, the method waits for a close above its high to go long or below its low to go short. Positions are closed when price crosses a 20-period simple moving average in the opposite direction.
The document explains the setup and discusses false breakouts, volatility dependence, delayed entries, and potentially simplistic exits. It proposes added confirmation, adaptive thresholds, multi-timeframe checks, and alternative exit rules as avenues to examine. Although the text describes the pattern as high probability and mentions a capital allocation rule, it presents no backtest statistics or empirical support for those claims. The setup therefore offers explicit rules to test, not demonstrated evidence of an edge.
Key ideas
- A qualifying long-leg doji has a very small body and upper and lower wicks at least twice its size.
- An ATR filter screens patterns according to prevailing volatility.
- The strategy waits for a close beyond the doji high or low before entering in that direction.
- A cross back through the 20-period simple moving average is used as the exit condition.
- False breakouts, delayed entries, and simplistic exits are noted risks, while no performance results are supplied.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.