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Momentum pullback research

Red Candle Theory: define the setup before measuring the result

Red Candle Theory is a momentum pullback setup described by Tim Bohen: wait for a red five-minute candle after a sharp rise, then use its range to plan a possible continuation trade. It supplies reference levels, not a verified win rate. The setup, the time it becomes observable and the price an order actually receives are separate questions.

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What the named setup establishes

Bohen’s linked first-person account describes a sharp move followed by a high, tight red five-minute candle, using the candle high and low as trade references and a 3-to-1 target framework. This is evidence of how he teaches the pattern. The selected example and his favorable assessment do not independently establish a success rate across all eligible events.

  • The visible red body only compares the bar’s open and close. A lower-volume pullback does not prove light profit-taking, institutional support or sufficient executable liquidity.
  • “Sharp” and “high and tight” need numerical definitions before systematic testing. An RVOL threshold or Fibonacci retracement is an added research choice, not a universal rule established here.
  • A daily-chart version is a different model with overnight gaps and different observations. Do not transfer an intraday result to it without testing.

An illustrative specification that another person can reproduce

The following is an author-created research variant, not a claim to reproduce every discretionary RCT trade. Use standard five-minute bars from one named feed. For this example, restrict the study to 09:30–16:00 America/New_York and reset each session; this deliberately excludes the extended-hours examples in Bohen’s discussion. Holidays and shortened sessions still require a calendar.

  • This green-bar rule makes “rise” reproducible but does not impose a large-move or tight-pullback threshold. Treat any additional filter as a separately named variant.
  • If entry and invalidation occur within the same bar and their order is unknown, flag the observation. Use verified finer data or a predefined conservative handling rule; do not automatically choose the profitable sequence.
  • Freeze the setup levels. Replacing them with each new bar’s high and low silently changes the strategy. Reject missing OHLC data and non-positive risk distances.
DecisionExample ruleWhat to record
Prior moveThree consecutive completed green bars, with each close above its preceding closeThe four relevant closing prices and three open/close pairs
SetupThe next completed bar closes below its open; doji bars do not qualifySetup timestamp, high and low
Pending entryA buy-stop trigger one valid tick above the frozen setup high, active for the next three barsCreation time, trigger, expiry and simulated fill
Before entryCancel after a breach below the setup low, session end or expiryReason the candidate did not become a trade
After entryOne position; stop reference at setup low; target three planned risk units above entryActual fill, costs, exit reason and any price gap

Recalculate price risk, including a worse fill

These invented prices illustrate arithmetic, not an entry recommendation. Let the setup high be $10.20, low $10.00 and valid tick $0.01. A planned trigger at $10.21 creates a $0.21 distance and a three-risk-unit target at $10.84 before costs.

  • The planned 476-share position costs $4,859.96 at $10.21. A risk budget alone does not establish sufficient buying power or liquidity.
  • FINRA explains that triggered stop orders become market orders and the stop price is not guaranteed. A stop-limit adds a price condition but may not execute.
  • Check broker support, session eligibility and order instructions before using an extended-hours model. A simulated stop is not proof that the same live order is available.
ScenarioCalculationMeaning
Planned $100 risk budgetfloor(100 / 0.21) = 476 sharesPlanned price risk $99.96, before fees and slippage
Entry fills at $10.30 instead476 × (10.30 − 10.00) = $142.80The original size now exceeds the planned budget
Entry $10.21; stop fills $9.90476 × (10.21 − 9.90) = $147.56A worse stop fill also exceeds the budget

A 3:1 target is not a measured edge

In a deliberately simplified model, every winner earns 3R, every loser loses 1R, and the win probability is p. Expected gross payoff is 3p − (1 − p) = 4p − 1, so 25% wins only breaks even before costs. If every trade costs another 0.1R, the break-even rate rises to 27.5%. Real exits, gaps and partial fills change the payoff distribution.

  • A planned target does not establish the average realized winner. Report the complete distribution of outcomes, including unfilled and skipped candidates.
  • Choose the universe and filters before reviewing outcomes. Selecting only famous runners after their move introduces selection bias.
  • Keep development and untouched evaluation periods separate, and report costs, drawdowns and trade counts. This page has not run a historical performance test.

Specify timing before generating a Pine strategy

Ask a coding tool to preserve the setup high, low and expiry after the setup bar closes. Describe pending-order cancellation, simultaneous-touch handling and session reset explicitly. A comparison with a moving prior-bar high does not, by itself, implement a breakout of a frozen setup level.

  • TradingView strategies use broker-emulator assumptions. Inspect order-creation time versus fill time, gaps, commission and slippage on standard charts.
  • A bar-close breakout confirmation and an intrabar stop-entry model are different tests. Name the chosen model before comparing results.
  • An indicator condition does not create a running TradingView alert automatically. Create the alert in the interface and check its saved settings; editing a script does not update an existing alert snapshot.
  • Pineify can draft the specified logic for syntax and chart review. Parameter optimization does not establish profitability or automatically supply a historical universe of momentum candidates.
Where Pineify fits

Pine Script AI Coding Agent

Turn a written setup, order and expiry specification into a Pine Script draft, then check its syntax and behavior in TradingView.

Draft a specified pullback model

Related resources

Define a complete trading setupConfirmation candle timingDay trading setup research

Frequently asked questions

Educational setup specification and invented arithmetic. No historical return, hit rate or trading advantage has been measured here.

Sources and verification