TL;DR
- What it does: Identifies three-candle volatility expansions where the third candle (C3) eclipses the combined range of the prior two (C1+C2), mapping out a strict pullback geometry.
- Target Market & Timeframe: Volatility and trend-following researchers across any timeframe looking to systematize pullback entries following momentum injections.
- Key Edge: Removes the discretionary element of drawing "order blocks" or "demand zones" by mechanically defining entry zones, reference entries, and R-multiple targets strictly via the expansion's price geometry.
Not financial advice. Backtested performance does not predict future results.
Context & Thesis
Trend continuation often stems from a localized volatility contraction followed by an explosive expansion. In discretionary trading, participants routinely look for a large momentum candle and attempt to buy or sell the subsequent pullback.
The inefficiency here isn't the setup itself, but the lack of objective consistency. Discretionary traders tend to manually draw zones based on visual bias, leading to unquantifiable strategies. The AlgoNexta CT3 indicator exists to formalize this process. By strictly defining the contraction phase (Candles 1 and 2) and the expansion phase (Candle 3) via range ratios, it transforms a subjective "momentum pullback" concept into a mathematically testable event.
Methodology
AlgoNexta CT3 isolates a three-candle expansion pattern based on relative range and body volume.
The core logic evaluates the current confirmed candle (C3) against the combined range of the prior two candles (C1 and C2).
- Expansion Threshold: By default, C3 must exhibit a range at least 1.5x the combined range of C1+C2 (
Minimum Range Ratio = 1.5). - Momentum Quality: The body of C3 must constitute at least 40% of its total range (
Minimum C3 Body % = 40.0), filtering out high-range dojis that lack directional commitment. - Directional Alignment: A CT3 Fall is triggered if C3 closes bearishly, while a CT3 Rise requires a bullish C3 close. Signals are only valid once the C3 bar is confirmed (
barstate.isconfirmed).
Optional Selectivity Filters: To reduce noise, researchers can enforce additional constraints. The script allows filtering by C1/C2 direction (e.g., requiring the contraction candles to point opposite the expansion), bounding the size difference between C1 and C2, or requiring C3 to close cleanly beyond the C1/C2 structural extremes. Additional ATR bounds and wick limits are available to filter out exhaustive spikes.
Trend Context: CT3 can be aligned with broader momentum using built-in EMA (default 50-period), EMA slope (3-period lookback), or raw market structure. A higher-timeframe context module can also enforce alignment with a HTF EMA (default 60m), executed without lookahead bias.
Analytical Geometry Mapping: Once a CT3 setup is confirmed, the script charts the geometry:
- Entry Zone: Shaded box defining the C1+C2 zone (default), full CT3 zone, or a blend.
- Reference Entry: Dashed white line marking the exact entry threshold (defaulting to the zone midpoint).
- Suggested Stop: Orange line calculating the invalidation level, utilizing a Fixed Price buffer (default 1.0), tick buffer, or ATR buffer.
- R Targets: Blue dotted lines projecting standard R-multiples based on the distance between the reference entry and the stop.
Finally, the script evaluates the confluence of these variables to assign a CT3 Score (0-100), grouping signals into grades from A+ (90+) down to Weak.
Core Logic Outline (Pine Script v6)
//@version=6
indicator("AlgoNexta CT3 Base Logic", overlay=true)
// Core geometry inputs
minRangeRatio = input.float(1.5, title="Minimum Range Ratio")
minBodyPct = input.float(40.0, title="Minimum C3 Body %")
// Candle ranges
c1Range = high[2] - low[2]
c2Range = high[1] - low[1]
c3Range = high - low
c3Body = math.abs(close - open)
// Core boolean checks
c1c2Combined = c1Range + c2Range
isExpansion = c3Range >= (c1c2Combined * minRangeRatio)
hasBodyMass = (c3Body / c3Range) >= (minBodyPct / 100.0)
// Bar confirmation & directional assignment
isConfirmed = barstate.isconfirmed
ct3Rise = isExpansion and hasBodyMass and (close > open) and isConfirmed
ct3Fall = isExpansion and hasBodyMass and (close < open) and isConfirmed
plotshape(ct3Rise, style=shape.triangleup, color=color.green, location=location.belowbar)
plotshape(ct3Fall, style=shape.triangledown, color=color.red, location=location.abovebar)Backtest Results
Rigorous historical validation is a core tenet of the AlgoNexta ecosystem. At the time of this release, formal out-of-sample backtest data and walk-forward equity curves for the CT3 indicator are pending and have not been supplied.
Currently, this script should be utilized as a visual and analytical overlay to build proprietary hypotheses, rather than a fully validated trading system. Do not assume statistical edge until you have run a comprehensive backtest over your chosen asset and timeframe.
Key Takeaways
What to do with this: Treat CT3 as a mechanical framework for standardizing your pullback entries. Rather than eyeballing momentum candles, use the script to enforce a strict 1.5x expansion rule. Begin your research by activating the optional trend alignment filters (like the HTF EMA) and filtering for signals graded B (70+) or higher. Log the interaction between price and the defined Reference Entry midpoint to determine if the target asset respects this specific volatility geometry.
Full Risk Disclosure
The information provided in this research post and the accompanying AlgoNexta CT3 script are for educational and analytical purposes only. They do not constitute financial, investment, or trading advice. Algorithmic trading involves substantial risk of loss and is not suitable for every investor. The indicator translates mathematical price relationships into visual data; it is not a mechanical trading system and does not execute orders. Past performance, whether backtested or implied, is not indicative of future results. You are solely responsible for your own trading decisions and risk management parameters.