Combining 123 Reversal Signals with a Detrended Price Trend Filter

Summary

This strategy combines a 123 reversal signal with the Detrended Synthetic Price indicator. The reversal component uses recent closing-price patterns and fast and slow stochastic readings around a threshold to define directional signals. The trend filter compares two exponential moving averages of price: a positive difference indicates an upward direction and a negative difference a downward one. Trades are taken when both components agree; disagreement closes positions.

The document gives parameter defaults and a short BTC_USDT futures backtest configuration, but no return, drawdown, or other performance evidence. Its prose describes the D_DSP calculation as using quarter- and half-cycle averages, while the code implements EMAs with lengths L and 2L, so the stated formula and implementation are not identical. The signal rules also appear inconsistently described in places. Rigid agreement rules can cause exits during continuing trends, while parameter choices may miss moves; the approach requires verification and robust testing.

Key ideas

• The system combines a stochastic and closing-price reversal signal with a detrended price direction filter.
• It enters when the reversal and trend signals agree and closes when they conflict.
• The implementation uses EMAs of different lengths to determine the detrended direction.
• The short backtest configuration provides no performance evidence, and the written formula differs from the source implementation.

Tags

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