Combining 123 Reversal Signals with Money Flow Direction

Summary

This strategy combines a three-bar 123 reversal pattern, filtered by a stochastic oscillator, with a money-flow direction signal. The reversal component looks for a change in consecutive closing-price movement alongside oscillator conditions. The money-flow component compares fast and slow smoothed flow measures; trades are considered only when both components point in the same direction. The script can also invert the resulting long and short signals.

The document describes the logic and configurable inputs, and gives a BTC-USDT futures backtest setup over a short historical window. It reports no performance results, so the setup does not establish profitability or robustness. The stated limitations include false reversal signals, lag in the flow measure, and sensitivity to parameter choices. It recommends testing settings and adding stop-loss and position-management rules; the provided source itself closes positions when the combined signal is neutral but does not define a dedicated stop-loss.

Key ideas

• A 123 reversal signal uses recent closing-price changes and stochastic conditions to identify possible turning points.
• The money-flow component compares fast and slow smoothed measures to determine directional bias.
• A trade is signaled only when the reversal and money-flow directions agree.
• The script can reverse long and short signals, and exits when no combined directional signal remains.
• The published backtest configuration contains no performance evidence, and risk controls require further evaluation.

Tags

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