Volatility-Scaled Candle Color Reversals with Bracket Exits
Summary
This strategy constructs smoothed, color-coded candles from open, high, low, and close data, then marks transitions between bullish and bearish states. A transition becomes a signal only when the color candle's body exceeds a threshold tied to its own range. The document describes entering in the direction of the new color, exiting on a reverse transition, and optionally restricting trades to selected directions and time windows.
Risk controls include fixed-distance stop-loss and take-profit orders, though the discussion notes that fixed distances may not suit changing volatility. The article presents the method and implementation details but gives no measured trading results or specified test evidence. It also cautions about false signals in ranging or quiet markets, absent broader trend confirmation, parameter sensitivity, uneven trading frequency, and omitted position sizing. The description refers to ATR, but the stated threshold formula is based on candle range, so the volatility adaptation should be understood from that formula rather than assumed to use ATR directly.
Key ideas
- The method uses recursively smoothed candle values to classify bullish and bearish states.
- A color reversal is signaled only when the candle body exceeds a percentage of its range.
- Entries follow the new color, while an opposite color transition closes the position.
- Fixed-distance stops, profit targets, direction choices, and trading windows are described as configurable controls.
- No performance evidence is reported, and the document identifies whipsaws, parameter sensitivity, and missing position sizing as limitations.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.