Combining 123 Reversal Signals with Ergodic TSI Momentum

Summary

This strategy pairs a 123 price reversal setup with an Ergodic TSI momentum filter. The reversal component looks for a close to turn after two days moving the other way, with a stochastic condition to qualify the signal. The TSI component smooths price changes and their absolute values, then compares the resulting oscillator with its own EMA. A position is taken only when both components point in the same direction; otherwise, existing positions are closed.

The document provides indicator rules, default parameters, and a sample BTC futures backtest configuration, but no performance results. It warns that reversals can fail in choppy or persistent trends, that parameter choices may overfit individual instruments, and that price can turn against a trade again after entry. Suggested refinements include stop losses, instrument-specific settings, and shorter holding times, but these are proposals rather than tested improvements.

Key ideas

• The 123 setup seeks a reversal after two consecutive closes in one direction followed by a close in the other direction.
• A stochastic condition qualifies the reversal signal before it can contribute to a trade.
• The TSI compares smoothed momentum with a smoothed absolute price change and uses an EMA comparison for direction.
• The strategy enters only when the reversal and momentum signals agree, and closes positions when they do not.
• The document describes risks and sample settings but reports no backtest performance evidence.

Tags

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