New edge proposed: dead_cat_bounce_after_three_red_candles — E8 Intelligence Research

Abstract

{ "name": "dead_cat_bounce_after_three_red_candles", "source": "classic technical analysis term popularized by John Murphy / market folklore", "type": "entry_engine", "rule": "short on the close of the first green candle (close > open) that occurs after three consecutive red candles (each close < open, each body >= 0.5 ATR), if that green candle's close is below the midpoint of the prior three red candles' combined range and volume on the green candle <= 0.8 * average volume of last 20 bars", "pseudocode": "red3 = all(close[i] < open[i] and abs(close[i]-open[i])>=0.5*ATR for i=1..3) \ngreen = close[0] > open[0] and volume[0] <= 0.8 * avg(volume[1..20]) \nmid = (max(high[1..3]) + min(low[1..3])) / 2 \nif red3 and green and close[0] < mid: enter_short at close[0] \nexit_when price > entry + 0.5 * ATR or after N bars", "why_it_works": "the failed bounce after a strong down move represents trapped buyers who cannot push price beyond the recent selling pressure, and low volume suggest Author: Andrew Stewart Caldin, Independent Researcher, UK. Part of the E8 Intelligence Research series. Platform: e8intelligence.com