Bullish/Bearish Reversals

Background:
I have a trading idea that I'd like to develop further with the ultimate goal of having it fully automated. I have not traded it so don't have any results. From basic manual backtesting, I think it may have merit hence the reason for starting this thread to perhaps have it refined with the help of others. I don't want it to be bombarded with indicators at present. Ideally, I'd love an indicator with an alert and arrows every time the setup occurs and to also indicate with arrows all the previous instances of the setup. As mentioned, an EA would also be awesome if it proved to have some kind of merit.

Setup:
This is a basic, common reversal, similar to other ones I've looked at and tried to develop, but even simpler. The setup could be used in 2 ways. 1. as a sort of scalp. 2. to ride a trend. My assumption is that there'll be more winners using method 1 but the overall gains might be less than if using method 2.

We look for a bullish reversal bar. This bar's low is lower than the previous bar's low and its close is higher than the previous bar's close. (A bearish candle followed by a bullish candle that makes a lower low and a higher close than the previous close). For the purposes of this thread I am NOT looking for outside or engulfing bars therefore the reversal bar would make a lower high than the previous bar's high.

Reverse for sells.

Entry:
For the scalping idea, enter at the open of the very next bar after the reversal and exit at the first profitable closing bar. Stop loss at the low of the reversal bar.
For the trend following idea, enter as above but trail the stop initially under the reversal bar then using a 2 bar stop.

The setup occurs on all timeframes but for the purposes of this thread I am only looking at the 4h timeframe. I am also assuming that this will provide at least 1 trade a week on most pairs.

Pairs to trade: I haven't done much backtesting but so far EJ, AJ, AU are looking good.
RR: From preliminary backtesting some trades will have a less than 1:1 risk to reward while others will have a higher RR. (based on the scalp trade).

example trades to follow

Example sell

Recent reversal bars on AU

none of the above setups were cherry-picked, I just quickly scanned backwards on the chart identifying every reversal bar. Some trades made tiny profits, others higher profits. I think of it like a kind of pip accumulation.

I'd love it if anyone had an indicator that could alert when a reversal bar is formed and would love to also forward test an EA of this (exiting at the first profitable close) I'd also be interested in other exit options like a preset number of pips, and also preset amount of risk per trade.

Hi HarryPlotter,

Best wishes for your idea. Will be following along.

thanks acetrader I'd actually requested a similar indicator many years ago here. One actually got coded but was faulty - was taking into account outside bars as well. I just can't seem to find an indicator for the reversal anywhere.

Hey man,
my best wishes for your Idea.. I thought that maybe a scaffold as an example code could be helpful for you to start your automatization process;
(in this case: meta trader and python)

import MetaTrader5 as mt5
import pandas as pd
# Connect to MetaTrader 5
if not mt5.initialize():
print("initialize() failed")
mt5.shutdown()
# Set up symbol, timeframe, and data range
symbol = "EURUSD"
timeframe = mt5.TIMEFRAME_H4
start_date = pd.Timestamp("2022-01-01")
end_date = pd.Timestamp.now()
# Get historical OHLC data
ohlc_data = mt5.copy_rates_range(symbol, timeframe, start_date, end_date)
# Define the bullish reversal bar
reversal_bar = ((ohlc_data["low"][:-1] < ohlc_data["low"][1:]) &
(ohlc_data["close"][:-1] > ohlc_data["close"][1:]) &
(ohlc_data["close"][:-1] > ohlc_data["open"][:-1]) &
(ohlc_data["open"][1:] < ohlc_data["close"][1:]) &
(ohlc_data["high"][1:] < ohlc_data["high"][:-1]))
# Define the bearish reversal bar
reversal_bar_sell = ((ohlc_data["high"][:-1] > ohlc_data["high"][1:]) &
(ohlc_data["close"][:-1] < ohlc_data["close"][1:]) &
(ohlc_data["close"][:-1] < ohlc_data["open"][:-1]) &
(ohlc_data["open"][1:] > ohlc_data["close"][1:]) &
(ohlc_data["low"][1:] > ohlc_data["low"][:-1]))
# Set up trade parameters
sl_points = 50
tp_points = 100
lot_size = 0.1
# Place trades based on reversal bars
positions = mt5.positions_get(symbol=symbol)
if not reversal_bar[-1]:
if len(positions) == 0:
if reversal_bar_sell[-1]:
trade_type = mt5.ORDER_TYPE_SELL
trade_price = mt5.symbol_info_tick(symbol).ask
else:
return
else:
if positions[0].type == mt5.ORDER_TYPE_BUY:
if reversal_bar_sell[-1]:
trade_type = mt5.ORDER_TYPE_SELL
trade_price = mt5.symbol_info_tick(symbol).ask
else:
return
else:
return
else:
if len(positions) == 0:
trade_type = mt5.ORDER_TYPE_BUY
trade_price = mt5.symbol_info_tick(symbol).bid
else:
if positions[0].type == mt5.ORDER_TYPE_SELL:
trade_type = mt5.ORDER_TYPE_BUY
trade_price = mt5.symbol_info_tick(symbol).bid
else:
return
# Place the trade
request = {
"action": mt5.TRADE_ACTION_DEAL,
"symbol": symbol,
"volume": lot_size,
"type": trade_type,
"price": trade_price,
"sl": trade_price - sl_points * mt5.symbol_info_tick(symbol).point,
"tp": trade_price + tp_points * mt5.symbol_info_tick(symbol).point,
"magic": 123456,
"comment": "Python bot trade"
}
result = mt5.order_send(request)
# Check if the trade was successful
if result.retcode == mt5.TRADE_RETCODE_DONE:
print("Trade executed successfully")
else:
print(f"Trade execution failed: {result.comment}")
# Disconnect from MetaTrader 5
mt5.shutdown()

Have a nice Start into the Week,
best regards with the Project,
Marco

Had another look and realised I don't like it so much on GU but still can't properly test at the moment. AJ looks like a good pair to use.

hi marcorlp, hopefully someone could turn that code into something I can use on MT4! Thanks for your effort!

Before I head to bed, I'm wondering if instead of the trend following method using a 2bar stop, it would be better simply moving the stop to BE when at 1:1 and exiting when 1:2? Either way, I hate staring at charts!

thread moved to Trading Discussion. I welcome any discussion about what I've proposed!

GA had quite a few setups recently

Hy guys, what's the name of this indicator.

i im searching your method . hope you will give many good idea
like you

This is the piercing pattern, no? One of my favorites. There are a lot of signals using the traditional sense. Many of them work, sure, but I don't think you come up ahead in the end. I have tried of thinking of ways to make it stricter to filter out some of the losses. Like maybe the signal bar has to pierce two candles. Or the signal bar has to only be a certain size. Using a trend filter. Or the signal bars close has to be near the previous days close..etc, etc. I will also say, prefer the daily chart mostly. Anyway I'd love to see your take and maybe add some discussion. I also do have an indicator to help, I'll share it shortly.

No it's not a piercing pattern in the strict definition because I'm not looking to see if the 2nd candle closed beyond 50% of the first one. Every time I look at one filter that works, I then see perfectly good trades that ignored the filter altogether. That's whay I'd like to test it by exiting on the first profitable close after entry (perhaps even having a filter with this of the first profitable entry must equal at least 10pips), and testing it by aiming for a 1:2 risk to reward and moving the stop to BE when 1:1

Understood.

I'm afraid I can't locate that indicator. You can use ChatGPT to help you just as easily. I've been using it, and its a god sent.

As far as filters go, I think you can also explore looking out a few bars. Especially if the high or low of the signal bar is violated.

Regrettably I'm on family vacay, so I have don't have access to my notes...

Good luck hope you make an inroads....

In my opinion there are just too many signals. I was comparing the signal bar to 2 and three bars back also. But yes, you will always give up some nice wins. Here I look for the signal bar to A. Not touch the previous days open, B. To pierce the body of the candle two days ago.