Combining 123 Reversal Signals with Multi-Period CMO Momentum

Summary

This strategy combines a 123-style price reversal rule with a composite Chande Momentum Oscillator (CMO) signal. The reversal component looks for two consecutive rising or falling closes alongside a 9-period Stochastic condition. The CMO component averages readings over 5, 10, and 20 periods, taking a directional signal when that average crosses above 70 or below -70. A trade is entered only when both components agree; when they do not, the strategy closes positions.

The document presents the combination as a way to filter signals, but supplies no backtest results or evidence that it improves reliability or returns. It notes that price patterns can fail, CMO can be noisy, and requiring agreement can miss trades. Suggested extensions include testing parameters, adding risk controls, and checking robustness across markets; these proposals are not evaluated in the document.

Key ideas

• The strategy requires agreement between a price reversal rule and a multi-period CMO signal.
• The reversal component combines two consecutive rising or falling closes with a 9-period Stochastic condition.
• The CMO component averages readings from 5, 10, and 20 periods and uses thresholds of 70 and -70.
• Disagreement between the components results in closing positions.
• The document offers no performance evidence and identifies false signals 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.