A Candlestick Pattern for Trading Emini S&P

While talking with some trading buddies on handling trend days (those days that keep going in one direction only, with little or no pullbacks), I backtested the following setup and produced some very interesting results.

Identifying a Trend Day

By definition, there is no way we would know a day is a trend day until after the day is over. The term is useful for labelling purpose only.

However, breakout trading systems are designed to get their maximum profits on these days. Here is an example in case you have not seen one.

This time, I used the candlestick pattern of the first three (3) 30-minute bars in a trading day as the triggering tool. The logic behind is that if the first 3 candlesticks are all moving in the same direction, it is probably as good a trigger comparing to opening range breakout.

Long Setup

I put the following long entry signal into Backtest EZ, trading 1 lot of Emini S&P. All positions exit on market at 4:00 ET.

date (2) <> date (3)
and c > o and c (1) > o (1) and c (2) > o (2)

What it does is to look for 3 up candlesticks right after open.

Here is the resulting equity curve.


The result is not good. An interesting observation is that the long trades work better in the 2000-2002 bear market than in the 2003-2006 recovery market.

Short Setup

Then, I tried the exact opposite price pattern for short entry.

date (2) <> date (3)
and c < o and c (1) < o (1) and c (2) < o (2)

The result is very impressive.


End Note

The short setup should be a good tool even for non-system traders as it provides a strong bias towards the end of the day, by simply looking at the first 3 bars of the day.

Trend up days obviously do not behave the same as trend down days.

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