The Barking Rat Lite

17 ago

Momentum & FVG Reversion Strategy
The Barking Rat Lite is a disciplined, short-term mean-reversion strategy that combines RSI momentum filtering, EMA bands, and Fair Value Gap (FVG) detection to identify short-term reversal points. Designed for practical use on volatile markets, it focuses on precise entries and ATR-based take profit management to balance opportunity and risk.



Core Concept
This strategy seeks potential reversals when short-term price action shows exhaustion outside an EMA band, confirmed by momentum and FVG signals:

EMA Bands:
Parameters used: A 20-period EMA (fast) and 100-period EMA (slow).

Why chosen:
- The 20 EMA is sensitive to short-term moves and reflects immediate momentum.
- The 100 EMA provides a slower, structural anchor.

When price trades outside both bands, it often signals overextension relative to both short-term and medium-term trends.

Application in strategy:
- Long entries are only considered when price dips below both EMAs, identifying potential undervaluation.
- Short entries are only considered when price rises above both EMAs, identifying potential overvaluation.

This dual-band filter avoids counter-trend signals that would occur if only a single EMA was used, making entries more selective..

Fair Value Gap Detection (FVG):
Parameters used: The script checks for dislocations using a 12-bar lookback (i.e. comparing current highs/lows with values 12 candles back).

Why chosen:
- A 12-bar displacement highlights significant inefficiencies in price structure while filtering out micro-gaps that appear every few bars in high-volatility markets.
- By aligning FVG signals with candle direction (bullish = close > open, bearish = close < open), the strategy avoids random gaps and instead targets ones that suggest exhaustion.

Application in strategy:
- Bullish FVGs form when earlier lows sit above current highs, hinting at downward over-extension.
- Bearish FVGs form when earlier highs sit below current lows, hinting at upward over-extension.

This gives the strategy a structural filter beyond simple oscillators, ensuring signals have price-dislocation context.

RSI Momentum Filter:
Parameters used: 14-period RSI with thresholds of 80 (overbought) and 20 (oversold).

Why chosen:
- RSI(14) is a widely recognized momentum measure that balances responsiveness with stability.
- The thresholds are intentionally extreme (80/20 vs. the more common 70/30), so the strategy only engages at genuine exhaustion points rather than frequent minor corrections.

Application in strategy:
- Longs trigger when RSI < 20, suggesting oversold exhaustion.
- Shorts trigger when RSI > 80, suggesting overbought exhaustion.

This ensures entries are not just technically valid but also backed by momentum extremes, raising conviction.

ATR-Based Take Profit:
Parameters used: 14-period ATR, with a default multiplier of 4.

Why chosen:
- ATR(14) reflects the prevailing volatility environment without reacting too much to outliers.
- A multiplier of 4 is a pragmatic compromise: wide enough to let trades breathe in volatile conditions, but tight enough to enforce disciplined exits before mean reversion fades.

Application in strategy:
- At entry, a fixed target is set = Entry Price ± (ATR × 4).
- This target scales automatically with volatility: narrower in calm periods, wider in explosive markets.

By avoiding discretionary exits, the system maintains rule-based discipline.

Visual Signals on Chart

• Blue “▲” below candle: Potential long entry
  
• Orange/Yellow “▼” above candle: Potential short entry
  
• Green “✔️”: Trade closed at ATR take profit
  
• Blue (20 EMA) & Orange (100 EMA) lines: Dynamic channel reference

⚙️Strategy report properties
Position size: 25% equity per trade
Initial capital: 10,000.00 USDT
Pyramiding: 10 entries per direction
Slippage: 2 ticks
Commission: 0.055% per side
Backtest timeframe: 1-minute
Backtest instrument: HYPEUSDT
Backtesting range: Jul 28, 2025 — Aug 17, 2025

Note on Sample Size:
You’ll notice the report displays fewer than the ideal 100 trades in the strategy report above. This is intentional. The goal of the script is to isolate high-quality, short-term reversal opportunities while filtering out low-conviction setups. This means that the Barking Rat Lite strategy is very selective, filtering out over 90% of market noise. The brief timeframe shown in the strategy report here illustrates its filtering logic over a short window — not its full capabilities. As a result, even on lower timeframes like the 1-minute chart, signals are deliberately sparse — each one must pass all criteria before triggering.

For a larger dataset:
Once the strategy is applied to your chart, users are encouraged to expand the lookback range or apply the strategy to other volatile pairs to view a full sample.

💡Why 25% Equity Per Trade?
While it's always best to size positions based on personal risk tolerance, we defaulted to 25% equity per trade in the backtesting data — and here’s why:

• Backtests using this sizing show manageable drawdowns even under volatile periods.
  
• The strategy generates a sizeable number of trades, reducing reliance on a single outcome.
  
• Combined with conservative filters, the 25% setting offers a balance between aggression and control.
  
• Users are strongly encouraged to customize this to suit their risk profile.

What makes Barking Rat Lite valuable

• Combines multiple layers of confirmation: EMA bands + FVG + RSI
  
• Adaptive to volatility: ATR-based exits scale with market conditions
  
• Clear, actionable visuals: Easy to monitor and manage trades

17 ago

Note di rilascio

Update to chart thumbnail

17 ago

Note di rilascio

Update to chart thumbnail 2.0

13 ore fa

Note di rilascio

Added alert functionality for entry signals and exits:
- Long Entry Alert – triggers when a long position is opened.
- Short Entry Alert – triggers when a short position is opened.
- Long Exit Alert – triggers when a long position reaches the ATR-based take profit.
- Short Exit Alert – triggers when a short position reaches the ATR-based take profit.