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2017issue C128-9

Monthly three-black candles as a trailing exit

On a monthly chart, a three-black exit is defined by candle color after a new high in a long rise. A completed sequence is sold at the next month’s open and is treated as a reason not to start a new long in that name.

  • The exit is read on a monthly-scale candle and is defined by color, meaning close versus open, not by body shape or where the close sits in the month’s high-low range.
  • A valid three-black exit needs a rise of at least two years, marked with a channel or trendline, and must begin at the highest price in that path.
  • One form is a white new-high candle followed by three black candles. The other is a black or doji new-high candle followed by two more black candles. Dojis count as black.
  • A completed sequence is sold at the next month’s open and is treated as a reason not to start a new long in that name.
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Current trackTrailing exit18 readingsCandlestick patterns100 readings

A hold on the monthly chart

The archive workflow reads the exit on a monthly chart. A monthly-scale candle is one bar covering a full calendar month.

The construction is framed as an exit for an existing long-term holding. A completed three-black sequence is also treated as a reason not to initiate a new long in that name.

Color is close versus open

The exit is defined by candle color, meaning close versus open. Body shape does not matter, and the rule does not depend on where the close sits in that month’s high-low range.

A black candle is a monthly bar whose close is below its open. A doji with equal open and close is counted as black. A white candle is a monthly bar whose close is above its open.

Two accepted forms

One accepted form is a white monthly candle that posts a new high in a rising trend, followed by three consecutive black monthly candles.

The second accepted form begins with a black or doji monthly candle that itself makes the new high, then continues with two more consecutive black candles.

Duration, path, and peak

A valid setup requires a rise of at least two years. That rise can be marked with a channel or trendline. Sideways or declining charts are excluded.

A channel or trendline here is a pair of roughly parallel lines, or a single trendline, used only to confirm a long rising path.

The duration filter is the requirement that the preceding rise last at least two years before any three-black sequence can count.

The highest-price filter is the requirement that a valid sequence begin at the peak of the entire channel or trend, not at an earlier swing. Only a sequence that begins at the highest price in the channel or trend counts. Earlier three-black lookalikes are rejected.

The next-month-open exit

When a completed sequence appears, the stated execution is to sell at the open of the following month. That next-month-open exit is the only liquidation rule given for a finished three-black exit.

One sequence met both tests

In the first illustrated multi-year rise, earlier four-candle lookalikes failed the two-year duration test. Another lookalike failed because a candle that appeared filled was actually white. Only one sequence met both the duration and color tests.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
16 of 18 in the Trailing exit track
201814-19 pp.Next on Trailing exitEvaluating profit-taking and reentry in trend followingIn the 80-day trend tests, only about 35% to 36% of trades were profitable even in markets described as trending, and winning trades lasted four to six times longer than losing trades.
All readings on this track · 18 readings
  1. 1988Constructing a mechanical trend system with independent trailing exits
  2. 1991Write a staged RSI exit book with trailing stops
  3. 1993Evaluating filter-trigger trailing exits after breakouts
  4. 1995Weekly-close breakout entry and trailing exit in Eurodollars
  5. 1996Evaluating moving-average turn entries and slope exits
  6. 1997Precommit an equity-risk cap and a profit-retracement exit
  7. 1998Exit stops before entries
  8. 1998Exit rules evaluated with a fixed random entry
  9. 2002Construct the stay-or-flatten decision before entry
  10. 2006Audit the stop, trail, and risk-reward stack as one procedure
  11. 2007Building a momentum system with relative strength and trailing exits
  12. 2013When buy and hold needs a sell rule
  13. 2013A mechanical trend toolkit that turns screens into one entry-exit procedure
  14. 2014Is a two-period relative strength index, a channel breakout, and a trailing exit one long-only procedure?
  15. 2016Trend-aligned option entries and trailing exits
  16. 2017Monthly three-black candles as a trailing exit
  17. 2018Evaluating profit-taking and reentry in trend following
  18. 2020Treat the zigzag threshold as a volatility-scaled construction variable
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Also on Trailing exit5 readings
1988Constructing a mechanical trend system with independent trailing exits1991Write a staged RSI exit book with trailing stops1993Evaluating filter-trigger trailing exits after breakouts1995Weekly-close breakout entry and trailing exit in Eurodollars1996Evaluating moving-average turn entries and slope exits