Combining 123 Reversal Signals with an Adaptive Price Filter

Summary

This combined strategy requires agreement between a 123 reversal system and a price filter described as empirical mode decomposition. The reversal component uses two consecutive higher or lower closes alongside a comparison between fast and slow stochastic values around a threshold. The filter processes midpoint prices into band-pass and mean components, then assigns a directional state based on those components relative to peak and valley estimates. A position is opened only when both components indicate the same direction; otherwise the code closes open positions. Published settings include a 14-bar stochastic length and a 20-bar filter length.

The document argues that combining short-term reversal conditions with a filter may reduce noise, but provides no performance statistics to substantiate its claims about win rate or stability. It warns that reversals can fail and the filter may be unreliable in extreme markets. A BTC/USDT futures backtest configuration for November to December 2023 is listed without results. The prose’s simplified 123 rules do not exactly match the supplied source conditions, so those details should be checked before interpreting or reproducing the strategy.

Key ideas

• The method takes positions only when a 123 reversal signal and a price-filter signal agree.
• The reversal component combines consecutive close movements with fast and slow stochastic conditions.
• The filter derives directional states from filtered midpoint prices and estimated peak and valley levels.
• The supplied source closes positions when the two systems do not agree, while offering an optional direction reversal.
• No test results are reported, and reversal failure, extreme-market filter behavior, and differences between prose and source logic remain caveats.

Tags

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