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Strategies / Mean reversion / Capitulation Fade Reversal

Capitulation Fade Reversal

Buys after a sharp sell-off when enough exhaustion factors align, and sells short after a mirrored rally. Positions use a stop at 2 times the 20-bar average true range and a target at 3 times it.

Mean reversionLong & shortSwingUSD/JPYDaily
1.23Profit factor
66,630Net profit USD
44.69%Win rate
1,969Trades
-7,000Max drawdown
33.84Avg trade

Best run of 2. USD/JPY, Daily, spread 1, from run pf:2026-10-11-USDJPY-D.tsv:3.

Entry rules, long

  1. Close is below the 38-period EMA, the candle is red (close below open), and volume is at least 2 times its 20-bar average.
  3. Two factors: close below the 38-period EMA for 12 or more bars, and below the 5-period EMA for 3 or more bars.
  4. The candle body is at least 1.5 times its 10-bar average body.
  5. Close is at least 2 times the 20-bar ATR below the 38-period EMA.
  6. There are at least 3 successive lower swing lows.

Entry rules, short

  1. Close is above the 38-period EMA, the candle is green (close above open), and volume is at least 2 times its 20-bar average.
  3. Two factors: close above the 38-period EMA for 12 or more bars, and above the 5-period EMA for 3 or more bars.
  4. The candle body is at least 1.5 times its 10-bar average body.
  5. Close is at least 2 times the 20-bar ATR above the 38-period EMA.
  6. There are at least 3 successive higher swing highs.

Exit rules

  2. A target sits 3 times the 20-bar average true range from the entry price.
  3. Short trades use the same distances in the opposite direction.

Test conditions

PeriodUp to 2026-10-11
InstrumentUSD/JPY, Daily
Spread1 points
Starting capital1,000,000
CostsSpread only. Commissions and overnight financing are not included.
BarsUp to 200,000 bars, fewer where the instrument has less history
Last tested2026-10-11

Every run

Markets and timeframes tested

MarketTimeframePFTradesWin %NetMax DD
USD/JPYBest runDaily1.23 1,96944.6966,630 USD-7,000
FTSE 100Dailyn/a 48339.963,791 EUR-3,010

Charts

Results by run

Net profitMax drawdown

The code

ProBuilder code, as tested

// ==============================================================
// Capitulation Fade Reversal
// ProRealAlgos Strategy Library  |  prorealalgos.com
// Type: Mean reversion
// Direction: Long & short
// Timeframe tested: Daily
// ==============================================================

DEFPARAM CumulateOrders = false

ONCE barsaboveslow = -1
ONCE barsbelowslow = -1
ONCE barsabovefast = -1
ONCE barsbelowfast = -1
ONCE llcount = 0
ONCE hhcount = 0
ONCE lastswinglow = 0
ONCE lastswinghigh = 0
ONCE haslow = 0
ONCE hashigh = 0

slowema = ExponentialAverage[38](close)
fastema = ExponentialAverage[5](close)
myAtr = AverageTrueRange[20](close)
volavg = Average[20](volume)
body = abs(close - open)
avgbody = Average[10](body)

89 more lines: the entry and exit rules.

Setup

How to load it

  1. Copy the code with the copy button on the code block.
  2. In ProRealTime, open a chart of the instrument and timeframe you want to test, then open ProOrder > New trading system and choose "Create with programming".
  3. Paste the code, give the system a name and save it.
  4. Click "Backtest", set your own spread and position size, and run it before you consider trading it live.

Indicators used

ATREMASMAVolume
Read this firstKnown weaknesses2 points
  • Results include the spread only. Commissions and overnight financing are not included.
  • The code is published as it was backtested and has not been compiled again since.

Questions

About this strategy

Can I run Capitulation Fade Reversal in ProOrder?

Yes. The code is ProBuilder and runs as an automated ProOrder system. Backtest it on your own account with your own spread and position size before trading it live.

Which markets was it tested on?

It was tested on 2 market and timeframe combinations. The best run was USD/JPY, Daily, with a profit factor of 1.23 over 1,969 trades.

How large was the drawdown?

The best run had a maximum drawdown of 7,000 USD at the tested position size, against a net result of 66,630 USD.

Does it trade long, short or both?

It trades both long and short.

Related

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MACD Exhaustion Reversal (short only)

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Past backtest results do not guarantee future results. This is not financial advice. Curated and maintained by ProRealAlgos. ProRealTime™ is a trademark of ProRealTime SAS. prorealalgos.comStatsDocs