Trend pullback: reclaim within an explicit filter

Research status: untested hypothesis. No backtest, paper or live results exist. Every threshold, period, R value and risk fraction is an untested candidate parameter, not a recommendation.

The idea

Buying strength after a big move often means buying late. Buying a falling price means guessing the bottom. This playbook asks whether waiting for a dip that is then reclaimed, inside a trend defined by an explicit filter, gives a cleaner entry and a clearer stop than either. It’s a definition to test, not evidence that trends persist.

IF–THEN rules

Moving averages (SMA) use completed 1-hour closes only. No intrabar signals.

1. Trend filter: close above SMA(50), and SMA(50) higher than it was 5 bars ago.
2. Pullback and reclaim: the previous bar closed at or below SMA(20) and this bar closed above SMA(20).
3. No breakdown: this bar’s low is above the lowest low of the previous 20 bars.
4. THEN enter at the next bar’s first executable price, if all shared checks pass.

• Stop: lowest low of the last 5 bars minus max(2 ticks, 0.1% of the signal close). Frozen.
• Target: highest high of the 20 bars before the signal, frozen. Net reward must be at least 2R after costs. If there isn’t room, there’s no trade; don’t invent a further target.
• Invalidation exit: a completed close below SMA(50) exits at the next bar’s open.
• Time stop: exit after 24 bars if nothing else has triggered.
• The stop is live intrabar the whole time and takes priority over any scheduled exit. No adding, no trailing-stop reinterpretation.

When NOT to trade

• Chop: price crossed SMA(20) in alternating directions 4 or more times in the last 10 closes.
• Target at or below entry, or costs eat the room to 2R.
• Any shared no-trade filter fails.
• Falling markets: this is long-only. A short version is a separate hypothesis that would need its own product and risk research.

Hypothetical example (made-up prices)

Item	Value
SMA(50) rising, close above it	✓
Prior close 49.80 vs SMA(20) 49.90; signal close 50.30 vs SMA(20) 49.95	Reclaim ✓
Entry (next open)	50.35
5-bar low 49.40 → stop 49.40 − 0.05	49.35
Prior 20-bar high (target)	53.00
Risk per unit incl. 0.06 costs	1.06
Net reward per unit	2.59 → about 2.4R, passes

If it works: price reaches 53.00 within 24 bars: about +2.4R. If it fails: price slides through 49.35 intrabar and fills at 49.30: about −1.05R. Or neither happens and the 24-bar time stop exits wherever price is, often a small win or loss.

Ratigan Capital rules in this playbook

• Early Is Wrong: buying the dip before the reclaim close is a different (and untested) strategy.
• Never Average Down: if the reclaim fails, take the stop. Don’t buy more lower.
• Patience as a Position: most hours produce no signal.
• Price Is the Only Truth: the averages are just descriptions of price; a lagging “rising” SMA can still be rising during a sharp drop, which is why the stop is the stop.

Why it can fail

A reclaim can fail right as the trend ends. The fixed target can cap a strong trend, and the filters may leave too few trades to learn anything. Moving-average rules have been studied for decades; data-snooping across many tried rules can make one look good by luck (see Sullivan, Timmermann & White, 1999).

Pre-trade checklist

1. Trend filter true on completed closes?
2. Reclaim close happened, and no 20-bar breakdown?
3. Not in chop; shared filters clear?
4. Stop, target, time stop and size written; net ≥ 2R?

Sources

• StockCharts ChartSchool: Moving averages
• StockCharts ChartSchool: Support and resistance
• Sullivan, Timmermann & White (1999), “Data-Snooping, Technical Trading Rule Performance, and the Bootstrap,” Journal of Finance (RePEc listing)