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Developer: Richard Wyckoff; Toby Crabel; Gerald Appel. Source: Crabel, T. (1990).

Day Trading with


Short Term Price Patterns and Opening Range Breakout. Greenville: Traders Press, Inc.; Appel, G.
(2005). Technical Analysis. NJ: Pearson Education, Inc. Concept: Trading strategy based on reversal
patterns confirmed by a price-momentum divergence. Research Goal: Performance verification of
reversal patterns. Trade Setup: Long Setup: A price move below a Demand Pivot (Definition on the
slide “I-B.”) is followed by a reversal to the upside. Short Setup: A price move above a Supply Pivot
(Definition on the slide “I-B.”) is followed by a reversal to the downside. Trade Entry: Long Trade
Entry: A buy at the open is placed after a long setup. Short Trade Entry: A sell at the open is placed
after a short setup. Portfolio: 42 futures markets from four major market sectors (commodities,
currencies, interest rates, and equity indexes). Data: Since 1980. Testing Platform: MATLAB®.
Pivots:
Supply Pivots are surrounded on either side by lower highs. Demand Pivots are surrounded on
either side by higher lows. The significance of pivots is determined by the number of surrounded
highs and lows.

Example of pivots with Pivot Size = 2:

Supply Pivot

Pivot_Size = 2

Demand Pivot
Top Reversal:
Top Reversal is defined as a price move above a Supply Pivot followed by a reversal to the downside
that meets the following criteria:

(A) It closes below the two previous days’ closings;


(B) The close is below the Supply Pivot;
(C) The close is below the opening and the mid-range of the day;
(D) The daily range is greater than the previous day’s range;
(E) Points A-D materialize within 5 bars from the first breakout of the Supply Pivot.

Bottom Reversal:
Bottom Reversal is defined as a mirror image of the “Top Reversal”.
Reversal Patterns:
Price-Momentum Divergence:
Top Reversal: A price move above a Supply Pivot is not confirmed by MACD (Moving Average
Convergence Divergence).

Bottom Reversal: A price move below a Demand Pivot is not confirmed by MACD (Moving Average
Convergence Divergence).
Entry: Long Trades: A buy at the open is placed after the long setup (i.e. after the Bottom Reversal
defined above). Short Trades: A sell at the open is placed after the short setup (i.e. after the Top
Reversal defined above).

Time Exit: (n+1)th day at the open.


Risk-Reward Exit: Long Trades: Target = Entry + (Initial Risk * Reward_Ratio). Short Trades: Target =
Entry − (Initial Risk * Reward_Ratio). An exit at the open is placed once the target was reached on
the previous day.
Quick Exit: Long Trades: A sell stop is placed one tick below the true low of the setup bar (Defined
above in the “Setup”). Short Trades: A buy stop is placed one tick above the true high of the setup
bar (Defined above in the “Setup”).
Stop Loss Exit: ATR(ATR_Length) is the Average True Range over a period of ATR_Length. ATR_Stop is
a multiple of ATR(ATR_Length). Long Trades: A sell stop is placed at [Entry − ATR(ATR_Length) *
ATR_Stop]. Short Trades: A buy stop is placed at [Entry + ATR(ATR_Length) * ATR_Stop]. Stop Loss
Exit is used to normalize risk via position sizing.
Test Setup: https://oxfordstrat.com/trading-strategies/reversal-patterns-part-2/
Test Setup: https://oxfordstrat.com/trading-strategies/reversal-patterns-part-2/
Test Setup: https://oxfordstrat.com/trading-strategies/reversal-patterns-part-2/
Test Setup: https://oxfordstrat.com/trading-strategies/reversal-patterns-part-2/
Test Setup: https://oxfordstrat.com/trading-strategies/reversal-patterns-part-2/
Test Setup: https://oxfordstrat.com/trading-strategies/reversal-patterns-part-2/
Test Setup: https://oxfordstrat.com/trading-strategies/reversal-patterns-part-2/
Test Setup: https://oxfordstrat.com/trading-strategies/reversal-patterns-part-2/
• Reversal patterns are sensitive to trading costs.
• Reversal patterns with larger target exits are preferred.
• In comparison to the previous tests, a price-momentum divergence based on MACD (Moving
Average Convergence Divergence) adds value.
Oxford Capital Strategies Ltd.
30 Bankside Court
Stationfields
Kidlington
Oxford, OX5 1JE
United Kingdom

info@oxfordstrat.com
T: + 44 (0)1865.589.111