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Bearish Engulfing Pattern Strategy

This pattern aims to capture the start of a bearish swing after a rally. A bearish engulfing occurs when a red candle completely swallows the prior bullish body. Counting a few consecutive up bars before the pattern ensures the market was previously rising.

Testing indicates an average annual return of about 79%. It performs best in the stocks market.

The algorithm stores each candle in sequence. If the new bar closes lower than it opens and its body engulfs the previous bullish bar, a short sale is executed. The stop-loss is positioned above the pattern high to limit exposure.

Positions are typically managed using the protective stop, although the trader may exit manually if conditions change. Requiring an uptrend helps avoid false signals during choppy markets.

Details

  • Entry Criteria: Bearish candle engulfs prior bullish bar, optional uptrend present.
  • Long/Short: Short only.
  • Exit Criteria: Stop-loss or discretionary.
  • Stops: Yes, above pattern high.
  • Default Values:
    • CandleType = 15 minute
    • StopLossPercent = 1
    • RequireUptrend = true
    • UptrendBars = 3
  • Filters:
    • Category: Pattern
    • Direction: Short
    • Indicators: Candlestick
    • Stops: Yes
    • Complexity: Intermediate
    • Timeframe: Intraday
    • Seasonality: No
    • Neural networks: No
    • Divergence: No
    • Risk level: Medium
using System;
using System.Collections.Generic;

using Ecng.Common;

using StockSharp.Algo.Indicators;
using StockSharp.Algo.Strategies;
using StockSharp.BusinessEntities;
using StockSharp.Messages;

namespace StockSharp.Samples.Strategies;

/// <summary>
/// Bearish Engulfing strategy.
/// Enters short on bearish engulfing pattern above SMA.
/// Enters long on bullish engulfing pattern below SMA.
/// Exits via SMA crossover.
/// </summary>
public class EngulfingBearishStrategy : Strategy
{
	private readonly StrategyParam<int> _maPeriod;
	private readonly StrategyParam<DataType> _candleType;
	private readonly StrategyParam<int> _cooldownBars;

	private ICandleMessage _previousCandle;
	private int _cooldown;

	/// <summary>
	/// MA Period.
	/// </summary>
	public int MAPeriod
	{
		get => _maPeriod.Value;
		set => _maPeriod.Value = value;
	}

	/// <summary>
	/// Candle type.
	/// </summary>
	public DataType CandleType
	{
		get => _candleType.Value;
		set => _candleType.Value = value;
	}

	/// <summary>
	/// Cooldown bars.
	/// </summary>
	public int CooldownBars
	{
		get => _cooldownBars.Value;
		set => _cooldownBars.Value = value;
	}

	/// <summary>
	/// Constructor.
	/// </summary>
	public EngulfingBearishStrategy()
	{
		_maPeriod = Param(nameof(MAPeriod), 20)
			.SetGreaterThanZero()
			.SetDisplay("MA Period", "Period for SMA", "Indicators");

		_candleType = Param(nameof(CandleType), TimeSpan.FromMinutes(1).TimeFrame())
			.SetDisplay("Candle Type", "Type of candles to use", "General");

		_cooldownBars = Param(nameof(CooldownBars), 500)
			.SetRange(1, 1000)
			.SetDisplay("Cooldown Bars", "Bars to wait between trades", "General");
	}

	/// <inheritdoc />
	public override IEnumerable<(Security sec, DataType dt)> GetWorkingSecurities()
	{
		return [(Security, CandleType)];
	}

	/// <inheritdoc />
	protected override void OnReseted()
	{
		base.OnReseted();
		_previousCandle = null;
		_cooldown = default;
	}

	/// <inheritdoc />
	protected override void OnStarted2(DateTime time)
	{
		base.OnStarted2(time);

		_previousCandle = null;
		_cooldown = 0;

		var sma = new SimpleMovingAverage { Length = MAPeriod };

		var subscription = SubscribeCandles(CandleType);
		subscription
			.Bind(sma, ProcessCandle)
			.Start();

		var area = CreateChartArea();
		if (area != null)
		{
			DrawCandles(area, subscription);
			DrawIndicator(area, sma);
			DrawOwnTrades(area);
		}
	}

	private void ProcessCandle(ICandleMessage candle, decimal smaValue)
	{
		if (candle.State != CandleStates.Finished)
			return;

		if (!IsFormedAndOnlineAndAllowTrading())
			return;

		if (_cooldown > 0)
		{
			_cooldown--;
			_previousCandle = candle;
			return;
		}

		if (_previousCandle != null)
		{
			var isPrevBullish = _previousCandle.ClosePrice > _previousCandle.OpenPrice;
			var isPrevBearish = _previousCandle.ClosePrice < _previousCandle.OpenPrice;
			var isCurrBearish = candle.ClosePrice < candle.OpenPrice;
			var isCurrBullish = candle.ClosePrice > candle.OpenPrice;

			var bearishEngulfing = isPrevBullish && isCurrBearish &&
				candle.ClosePrice < _previousCandle.OpenPrice &&
				candle.OpenPrice > _previousCandle.ClosePrice;

			var bullishEngulfing = isPrevBearish && isCurrBullish &&
				candle.ClosePrice > _previousCandle.OpenPrice &&
				candle.OpenPrice < _previousCandle.ClosePrice;

			if (Position == 0 && bearishEngulfing && candle.ClosePrice > smaValue)
			{
				SellMarket();
				_cooldown = CooldownBars;
			}
			else if (Position == 0 && bullishEngulfing && candle.ClosePrice < smaValue)
			{
				BuyMarket();
				_cooldown = CooldownBars;
			}
			else if (Position > 0 && candle.ClosePrice < smaValue)
			{
				SellMarket();
				_cooldown = CooldownBars;
			}
			else if (Position < 0 && candle.ClosePrice > smaValue)
			{
				BuyMarket();
				_cooldown = CooldownBars;
			}
		}

		_previousCandle = candle;
	}
}