Combining 123 Reversal Signals with Support and Resistance Breaks

Summary

This strategy combines a 123 reversal signal with a support and resistance signal. The reversal component uses consecutive rising or falling closes alongside Stochastic conditions; the second component checks price against reference highs and lows. The stated approach takes a position only when both components agree and closes positions when they do not. A reverse-trade option is also described, allowing the direction of a combined signal to be inverted.

The document argues that combining signals may filter some false entries, while warning that sideways conditions can lead to frequent reversals and higher trading costs. It recommends testing Stochastic settings, considering a trend filter, and refining stop rules. The published material includes parameter values and a short BTC futures backtest window, but gives no returns, drawdowns, or other evidence that would verify the claimed benefits. The explanatory text and source are not fully aligned in their descriptions of the Stochastic conditions and support/resistance lookback, so the exact implemented rules warrant careful inspection before evaluation.

Key ideas

• The strategy combines a 123 reversal condition with a support or resistance signal.
• It enters only when both components indicate the same direction and otherwise closes positions.
• An optional reverse setting can invert the combined long and short signals.
• Sideways markets may cause repeated reversals and increased trading costs.
• The published backtest settings contain no performance results, and the explanation does not fully match the source rules.

Tags

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