Combining 123 Reversal Signals with a 2/20 EMA Trend Filter

Summary

This strategy pairs the 123 reversal method with a 2/20 exponential moving average trend filter. The reversal component uses two-day closing-price patterns and a stochastic oscillator around a midpoint threshold to generate directional signals. A separate EMA-based state identifies whether price is in an upward or downward trend. The strategy takes a position only when both components agree and closes positions when they no longer align; an option can reverse the resulting direction.

The document presents the combination as a way to pursue short-term turning points while avoiding trades against the broader trend. It gives parameter settings and a published BTC/USDT futures test interval, but no performance statistics or evidence that the filter improves results. It also notes that reversals may fail, strong trends can overwhelm counter-moves, and results may depend on parameters and market conditions. Suggested extensions include testing alternative parameters, adding volume or volatility filters, and applying stop-loss and position-sizing rules.

Key ideas

• The reversal component combines a two-day closing pattern with fast and slow stochastic readings around a threshold.
• The EMA-based trend state confirms direction before the strategy opens a position.
• Trades are taken only when the reversal and trend signals point the same way.
• The document supplies a futures test interval but no quantified results to establish strategy performance.
• False reversals, persistent trends, and parameter sensitivity remain key risks.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.