Sign inCreate account
← Strategy library

Three-Day Reversalthree closes the same way, then the turn

Evidence: ModerateBeginnerSwing · Reversal

Three consecutive daily closes in one direction is not rare, but three consecutive closes against an established uptrend is, and the fourth day resolves it one way or the other.

This is short-horizon reversal on the daily bar — the same effect the two-period oscillator in the mean-reversion book is chasing on the hour, given room to breathe. The longer horizon makes it far less sensitive to spread and far more sensitive to being wrong about the trend.

Everything on this page is measured in daily bars. A rule that says 'twenty bars' means twenty trading days — about a month — and a stop that survives that has to be wide enough to sit through a normal week.

Category
Swing · Reversal
Timeframe
D1 only
Suitable pairs
EURUSD · AUDUSD · NZDUSD · XAUUSD
Session
Daily close
Indicators / tools
EMA(50) for direction · RSI(14) for the exhaustion read · ATR(14)

Valid setup

SW-02 · THREE-DAY REVERSAL — VALID SETUP AUDUSD · D1 · three lower closes inside an uptrend, then a close above the third day's high LONG 0.6456 0.6494 0.6532 0.6570 0.6608 0.6647 0.6685 THE THREE DOWN DAYS TARGET = the high the pullback began from 1R EMA(50) — longs only above it TARGET = day-one high ENTRY = close above the third day's high STOP = the three-day low − 0.5 × ATR(14) 1 2 3 4 0.6662 0.6602 0.6561 RSI(14) — the exhaustion read, not the trigger 70 40 ① Uptrend intact — price above the EMA(50) ② Three lower closes, deep enough to count (1 × ATR) ③ RSI sagging, but the RSI is not the trigger ④ Day four closes above day three's high — enter ⑤ Stop under the three-day low with an ATR buffer ⑥ Out at the day-one high, or after five days

Exact rules

Entry

  • Direction gate: the daily close is above the EMA(50). Longs only. This rule is doing most of the work and dropping it turns the strategy negative in most tests.
  • Setup: three consecutive lower daily closes.
  • Depth gate: the third close is at least 1 × ATR(14) below the high of the first of the three. Three tiny red days are not a pullback.
  • Trigger: the fourth day closes above the third day's high. Enter at that close.

Stop loss

  • Below the lowest low of the three down days, minus 0.5 × ATR(14).
  • That is a natural level, not a computed one, which is why the ATR buffer is there — the obvious low is where everyone else's stop is.
  • Risk 0.5%–1%.

Take profit / exit

  • The high of the first of the three down days. That is the level the pullback started from and the most common place for it to stall.
  • Or a time exit after five daily bars, whichever comes first.
  • No trailing. This is a reversion trade with a defined destination, and trailing turns it into a trend trade with none of the evidence.

Build Three-Day Reversal

Reading this page is free and always will be. Taking it is what costs — the complete MQL5 for the rules above, yours to keep, permanently. Five of them cost $10 and they never expire.

Sign inWhat it costs

More from Swing

Daily Trend Pullbackbuy the dip inside a trend that already existsDaily Breakout Retestlet the break go, buy the returnNew 20-Day High Continuationthe oldest systematic trade there is

Trading carries risk and most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade. The chart is an illustration of the rules on constructed candles — it is not a record of a trade and not a backtest.