3 Bar Fade

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Definition of '3 Bar Fade'

The "3 Bar Fade" strategy is based on the following pattern and set of rules:

Sell Signal

Rules for the sell signal:

  1. Three green bars in a row. (i.e. Close > Open for each bar) There is no limit about the level of the opens, highs, lows and closes of these 3 bars except for point 2. below.
  2. Bar 3 high is at least X number of ES points above bar 1 low where X is 0.30 ES points for each time frame interval given a base time frame interval of 1 minute. (If you understood that sentence the first time you read it then consider yourself a linguistic genius.) If you didn't understand it then an example will help: If you're looking at 10 minute bars then the difference between the high and low of bar 3 and 1 should be at least 10 x 0.30 = 3.00 ES points.
  3. Time limitation: Trades can only be taken after 10:00 EST and before 14:00 EST. If a trade is entered into before 14:00 EST then it is left to run until its stop or target is hit. It will be closed out at the end of day (EOD) if still open then. A reversal signal will NOT close this trade if the reversal is signaled after 14:00 EST.
  4. The stop trigger is set at 8 ticks above bar 3's high.
  5. The target is the size of the stop loss.
  6. The entry price is a limit order set at the closing price of bar 3. (If on the subsequent bar(s) the ES does not print 1 tick above the closing price of bar 3 then there will be no fill and this trade will not be executed).

Buy Signal

The rules for the buy signal are the opposite to those for the sell signal.

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