Combining 123 Reversal Signals with the Fisher Transform

Summary

This strategy combines a three-bar 123 reversal signal with the Fisher Transform. It opens a long or short position only when both indicators point in the same direction, and closes positions when their signals disagree. The document describes the reversal pattern as a price move that turns against the preceding direction, while the Fisher Transform is used to highlight potential turning points in normalized prices.

The supplied settings show a BTC/USDT futures backtest on four-hour bars over roughly one month in 2023, but no performance results are reported. The source code’s 123 signal uses close-price comparisons and stochastic conditions, so its implementation is more specific than the prose description of gaps. The document also stresses parameter tuning and money management. It does not provide evidence that the combination improves results, nor does it specify detailed risk limits or transaction costs.

Key ideas

• The strategy takes trades when the 123 reversal and Fisher Transform signals agree.
• When the two signals disagree, the described logic closes positions and stays flat.
• The code defines the reversal signal using close-price comparisons and stochastic conditions.
• The published backtest settings do not include performance statistics.
• Parameter tuning and money management are identified as important considerations.

Tags

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