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Three-Bar Reversal Down Strategy

A mirror image of the bullish version, this setup looks for quick bearish reversals. After two strong up candles that push to new highs, a decisive bearish candle closes below the prior bar's low. A brief uptrend beforehand helps confirm buyer exhaustion.

Testing indicates an average annual return of about 88%. It performs best in the stocks market.

The algorithm tracks a rolling window of three candles. When the pattern appears and any uptrend requirement is met, a short position is taken with the stop above the pattern high. The rules are straightforward so signals occur immediately at candle close.

The trade is exited on the protective stop or when another pattern forms. Because it plays short-term pullbacks within a potential down swing, it works best in volatile markets.

Details

  • Entry Criteria: Two bullish candles with higher highs then a bearish candle closing below the middle bar's low.
  • Long/Short: Short only.
  • Exit Criteria: Stop-loss or next pattern.
  • Stops: Yes, above pattern high.
  • Default Values:
    • CandleType = 15 minute
    • StopLossPercent = 1
    • RequireUptrend = true
    • UptrendLength = 5
  • 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>
/// Three-Bar Reversal Down strategy.
/// Pattern: 1st bar bullish, 2nd bar bullish with higher high, 3rd bar bearish closing below 2nd low.
/// Uses SMA for exit.
/// </summary>
public class ThreeBarReversalDownStrategy : Strategy
{
	private readonly StrategyParam<int> _maPeriod;
	private readonly StrategyParam<DataType> _candleType;
	private readonly StrategyParam<int> _cooldownBars;

	private ICandleMessage _bar1;
	private ICandleMessage _bar2;
	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 ThreeBarReversalDownStrategy()
	{
		_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();
		_bar1 = null;
		_bar2 = null;
		_cooldown = default;
	}

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

		_bar1 = null;
		_bar2 = 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--;
			_bar1 = _bar2;
			_bar2 = candle;
			return;
		}

		if (_bar1 != null && _bar2 != null)
		{
			// Three-bar reversal down
			var bar1Bullish = _bar1.ClosePrice > _bar1.OpenPrice;
			var bar2Bullish = _bar2.ClosePrice > _bar2.OpenPrice;
			var bar2HigherHigh = _bar2.HighPrice > _bar1.HighPrice;
			var bar3Bearish = candle.ClosePrice < candle.OpenPrice;
			var bar3BelowBar2Low = candle.ClosePrice < _bar2.LowPrice;

			var threeBarDown = bar1Bullish && bar2Bullish && bar2HigherHigh && bar3Bearish && bar3BelowBar2Low;

			// Three-bar reversal up
			var bar1Bearish = _bar1.ClosePrice < _bar1.OpenPrice;
			var bar2Bearish = _bar2.ClosePrice < _bar2.OpenPrice;
			var bar2LowerLow = _bar2.LowPrice < _bar1.LowPrice;
			var bar3Bullish = candle.ClosePrice > candle.OpenPrice;
			var bar3AboveBar2High = candle.ClosePrice > _bar2.HighPrice;

			var threeBarUp = bar1Bearish && bar2Bearish && bar2LowerLow && bar3Bullish && bar3AboveBar2High;

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

		_bar1 = _bar2;
		_bar2 = candle;
	}
}