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2012issue C0380-81

Two-bar band extreme entries with trailing stops

A historical mean-reversion construction allows a long or short only after two-bar confirmation of a band extreme. If that gate fails, the procedure stays in a stand-aside state, and a trailing stop bounds every open position so the full loop can be encoded as one automated procedure.

  • A long entry opens only after two or more candles print below the lower reference line, and only when the highs of the two preceding bars both stand below that lower output.
  • A short entry opens only after two or more candles print above the upper reference line, and only when the lows of the two preceding bars both stand above that higher output.
  • Rules are evaluated on a new-bar check after a bar has closed; without two-bar confirmation the procedure stays in a stand-aside state.
  • A trailing stop is the post-entry control that follows favorable price and keeps the exit bounded for the life of the position.
Entries in this reading3 entries
Current trackMean reversion43 readingsTrailing stop87 readingsRule-based entry174 readings

How entries are gated

Band inputs come from a custom indicator that exposes one higher value and one lower value. The higher output is the upper reference line. The lower output is the lower reference line.

A long entry is defined to open only after two or more candles print below the lower reference line. A short entry is defined to open only after two or more candles print above the upper reference line.

Two-bar confirmation on each side

Two-bar confirmation is the entry gate that allows a signal only after the two most recently completed bars both satisfy the same extreme condition.

The long-side rule requires the highs of the two preceding bars both to stand below the indicator's lower output. The short-side rule requires the lows of the two preceding bars both to stand above the indicator's higher output.

Timing, abstention, and the exit bound

Trigger evaluation is specified to run when a new bar appears rather than on a still-forming bar. That new-bar check keeps the two-bar confirmation tests on closed bars only.

When two closed bars have not confirmed an extreme, the procedure remains in a stand-aside state. That explicit no-trade outcome belongs in the same procedure as the long and short entries.

A trailing stop is specified as the post-entry control that bounds an already-open position. The trailing stop follows favorable price so the exit stays bounded for the life of the position.

The two-bar extreme tests are written so they can be encoded as an automated order-placing procedure.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
24 of 36 in the Mean reversion track
201212-17 pp.Next on Mean reversionAn eight-month average as a monthly gate for high-yield bondsThe case study uses an eight-month simple moving average of monthly closes as the only quantitative baseline for a buy state or a sell state in a high-yield bond fund.
All readings on this track · 36 readings
  1. 1986A futures fade as one range, order, and secrecy procedure
  2. 1992Constructing the mass-index range-reversal procedure
  3. 1993Switch trend following and mean reversion with an equity-curve filter
  4. 1994Evaluating weekly trend-following and mean-reversion timing rules
  5. 1996Dual-horizon bands for a precious-metals cash switch
  6. 1997Constructing a moving regression oscillator
  7. 1997Regime-dependent long and short rules in mechanical systems
  8. 2002A same-session pair book with a morning-fixed volatility envelope
  9. 2004Combining noncorrelated trend and reversion systems
  10. 2004Failed-breakout overlays on trending markets
  11. 2004Rank rotation after a path split, then Robustness testing
  12. 2004Range-bound tape as a filter for trend and oscillator rules
  13. 2005A moving-average short pullback that is only in scope in a decline
  14. 2006Constructing an adaptive price zone from a double-smoothed range
  15. 2007Two-period relative strength index versus a one-week universe baseline
  16. 2008Building ETF mean-reversion entries with a two-bar washout
  17. 2008Rebuild a short-period stochastic as a premier stochastic oscillator
  18. 2008A three-market regime map for equity bounces and dollar cycles
  19. 2009Option trade adjustment as one testable procedure
  20. 2010Implied volatility as a May 2010 market-regime lab for the S&P 500
  21. 2011Treat a large one-day move as a classified event
  22. 2011Long-call exits, volatility regimes, and spread assignment
  23. 2011Pairing same-horizon oscillators with a walk filter
  24. 2012Two-bar band extreme entries with trailing stops
  25. 2012An eight-month average as a monthly gate for high-yield bonds
  26. 2014Complete the checklist before the trade
  27. 2014Coded rules should face one test, not a kinder sample
  28. 2015Build a mean-reversion basket from one correlation path
  29. 2015Index dip reversion is horizon and regime dependent
  30. 2016Treat the end of a trend as a handoff, not a broken system
  31. 2017A testable half-swing pullback for trend continuation
  32. 2017Evaluating four swing detection rules for mean reversion
  33. 2018Intraday breakout and mean reversion as one rule set
  34. 2018Evaluating rare consecutive-close mean-reversion entries
  35. 2020Moving-average baselines, price vetoes, and mean reversion
  36. 2020Two-dimensional FX scaling for trend and reversal systems
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