Obelisk_3EMA_StochRSI_ATR: Plain English Breakdown
Written For You
This is for regular traders who don't need fancy math. We'll break it down piece by piece, guaranteed you'll understand after reading.
1. What Is This Strategy?
Three things combined into one complete system:
- Three lines (EMA): Tell you if the market is going up or down
- One indicator (StochRSI): Tell you when to jump in
- One ruler (ATR): Tell you how much to aim for and how much to risk
From an old YouTube video by "Trade Pro" claiming 76% win rate — but take that number with a BIG grain of salt.
Important: The author says "DON'T RUN THIS LIVE" — it's for learning and backtesting only.
2. What Are These Three EMAs?
Think of moving averages as roads of different lengths:
- EMA8 (fast road): Average of last 8 candles — very responsive, reacts quickly
- EMA14 (middle road): Average of last 14 candles — balanced
- EMA50 (slow road): Average of last 50 candles — big picture
How to read them:
When they're stacked like stairs going up:
- EMA8 on top
- EMA14 in middle
- EMA50 on bottom
This = market is climbing → consider buying.
Reversed = market falling → don't buy.
Why three instead of one?
One road can lie to you — a tiny wiggle and it's confused. Three roads agreeing = more trustworthy.
3. What Is StochRSI?
First understand RSI: a thermometer for prices (0-100). Too high (>70) = overheated; too low (<30) = too cold.
StochRSI takes RSI and runs it through a "randomizer" again — like zooming in on the thermometer. Even more sensitive.
Has two lines:
- K line: Fast one
- D line: Slow one (average of K)
When K crosses above D = golden cross = momentum starting to strengthen = potential buy timing.
4. What Is ATR?
Average True Range — measures "how much does this market wiggle?"
Example:
- Bitcoin moves 5% a day → ATR is big
- A stable coin moves 0.1% a day → ATR is tiny
How strategy uses it:
- Take-profit: Entry price + 2 × ATR
- Stop-loss: Entry price - 3 × ATR
Example: You buy at $100, ATR is $2.
- Take-profit: $100 + 2×$2 = $104
- Stop-loss: $100 - 3×$2 = $94
Why adapt to volatility?
Big ATR (volatile market) → wider stops, you don't get shaken out by normal swings. Small ATR (calm market) → tighter stops, you don't lose as much.
5. When Does It Buy?
All three conditions must be TRUE at the same time:
- EMA8 > EMA14 > EMA50 (stairs going up)
- K-line crosses above D-line (golden cross)
- Both happen on the SAME candle
Like leaving home requiring: good weather AND parents said yes AND friends available AND good mood AND healthy AND destination open. One fail = stay home.
Why both conditions?
- EMA alone: tells you direction but not "is right now a good time?"
- StochRSI alone: might buy in a downtrend
- Both together: right direction + right timing = solid entry
6. When Does It Sell?
Two scenarios:
Scenario 1: Made Enough
Price hits your take-profit level → auto-sell. Lock in gains.
Scenario 2: Lost Too Much
Price hits your stop-loss level → auto-sell. Cut losses.
No active selling
This strategy doesn't say "I think it'll drop now" to sell. It only watches two lines: take-profit and stop-loss. Hit one = execute.
Pros: Won't get shaken out by short-term swings Cons: May give back some profits if it spikes then pulls back
7. Stop-Loss and Take-Profit Details
Take-Profit: +2× ATR
You buy at $100, ATR is $3. TP = $100 + 2×$3 = $106. Hit $106 → sell.
Stop-Loss: -3× ATR
Same example: SL = $100 - 3×$3 = $91. Drop to $91 → sell.
The Math
Gain = $6, Loss = $9 Gain is LESS than loss. That seems bad...
But the strategy makes money through WIN RATE:
-
10 trades, 6 wins × $6 = $36
-
4 losses × $9 = $36
-
Break even!
-
10 trades, 6.5 wins × $6 = $39
-
3.5 losses × $9 = $31.50
-
Net profit = $7.50
Needs about 60%+ win rate to make money.
8. Timeframe Trick
Backtest: Use 5-minute chart Live: Use 1-hour chart
Why backtest small, trade big?
Small timeframe = more precise simulation. Long timeframe = fewer fake "whipsaw" where one candle hits both your stop and target.
The strategy handles this conversion internally — you trade 1h but backtest on 5m.
9. Pros
- Logic is clear: EMA says direction, StochRSI says timing, ATR says risk — each has a job
- Risk is set before entry: You know max loss before you even buy
- Doesn't chase: EMA arrangement confirms trend first, StochRSI finds good timing — not just "it's going up, BUY!"
- Adapts to volatility: ATR-based stops grow and shrink with the market
10. Cons
- Long only: Can't make money when market falls
- Unbalanced risk/reward: Gain 2, lose 3 — need high win rate
- Gets hurt in ranging markets: EMA flips back and forth, StochRSI keeps crossing — get stopped out repeatedly
- Author says don't use live: The code literally says "DO NOT RUN LIVE"
11. How to Use This Strategy
Step 1: Backtest
Run on historical data. Don't just look at returns — check:
- Max drawdown (biggest loss)
- Win rate
- Sharpe ratio
- Trades per day
Step 2: Optimize Parameters
Defaults aren't perfect for every pair. Try:
- EMA periods (e.g., 7-21-55 instead of 8-14-50)
- StochRSI settings
- ATR multiples
Step 3: Paper Trade
At least 1-2 months in paper mode.
Step 4: Small Capital Live
Start with money you can afford to lose.
Step 5: Keep Watching
Markets change. Strategy might need adjusting.
12. Quick Q&A
Q: Can it make money? A: No guarantees. Backtest good ≠ live good. Market changes.
Q: Do I need to know coding? A: To modify and run it, yes — some Python and Freqtrade knowledge needed.
Q: Why is stop bigger than profit? A: Designed for high win rate. If win rate > 60%, still profitable.
Q: Can I add shorting? A: Yes — flip the conditions: EMA8 < EMA14 < EMA50, K crosses below D.
Q: Which timeframe? A: Author recommends backtest 5m or 1m, live trade 1h. Code handles the conversion.
13. Final Thoughts
This strategy is interesting. It combines three classic tools into one system:
- Trend (EMA): Which direction
- Momentum (StochRSI): When to go
- Risk control (ATR): When to stop
But it's not a holy grail. Author himself says don't use it live. Think of it as a teaching example.
If you're new to quant trading: Study this. When you understand it, you've taken the first step. Then look at more complex strategies and you'll notice many use similar building blocks.
Remember: Strategy is a tool, the market is alive. Even the best tool needs human supervision. Expecting to set it and forget it and print money? Wake up — that's not how this works.
Quick Reference Card
| Item | Content |
|---|---|
| Strategy Type | Trend following |
| Direction | Long only |
| Entry | EMA bullish + StochRSI golden cross |
| Exit | Hit take-profit or stop-loss |
| Take-Profit | Entry + 2× ATR |
| Stop-Loss | Entry - 3× ATR |
| Timeframe | Backtest 5m, Live 1h |
| Author Says | Don't use live |