Combining 123 Reversal Signals with Linear Regression Intercept

Summary

This strategy combines a 123-style reversal rule with a linear regression intercept filter. The reversal component compares recent closes and the relationship between fast and slow Stochastic lines, with a configurable threshold, to produce bullish or bearish signals. The regression component compares the current close with an intercept calculated from a rolling price series. A trade is taken only when both components point in the same direction; otherwise the strategy closes its position. A reverse-trading option can invert the combined signal.

The document explains the rationale as filtering isolated signals while retaining both reversal and trend-related entries. It provides configurable indicator periods and a published five-minute BTC/USDT futures backtest setup covering one day, but reports no returns or other performance measures. The account notes that the regression calculation can lag sudden price changes, that requiring agreement may omit trades, and that parameters need evaluation. It proposes added stops and filters, but the described rules alone do not establish profitability or robustness.

Key ideas

• The 123 component uses recent closing-price relationships and Stochastic line relationships to flag reversals.
• The regression component assigns direction by comparing the close with a rolling linear regression intercept.
• Trades require agreement between the reversal and regression signals; disagreement closes the position.
• The strategy exposes signal periods, threshold, data source, and an option to reverse trades.
• The published test setup includes no outcome statistics, and the document identifies lag and missed opportunities as risks.

Tags

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