Combining 123 Reversals with a 14-Period Performance Filter

Summary

This trend-following strategy combines a 123 reversal signal with a performance index. The reversal component uses recent closing-price changes and a Stochastic oscillator: it identifies bullish or bearish setups from the direction of recent closes and the oscillator’s position relative to its smoothed value and a threshold. The second component measures percentage price change over a 14-period lookback. A trade is taken only when both components agree; otherwise, the strategy closes positions. A reverse-trading option is also listed.

The document argues that requiring agreement may reduce noise, but acknowledges that it also reduces signal frequency and may miss sudden turns. It notes sensitivity to parameter choices and individual asset moves, and suggests tuning the lookbacks, adding volume or stop-loss rules, and revising the signal combination. Published settings are for BTC/USDT futures on hourly bars over roughly one month, but no backtest results are presented. The claims about greater reliability therefore remain unverified in the document.

Key ideas

• The strategy combines a 123 reversal setup with a price-performance direction filter.
• A bullish or bearish trade requires both components to point in the same direction.
• When the combined signal is neutral, the strategy closes open positions.
• Agreement between filters may reduce noise but can also reduce trade frequency and miss reversals.
• The published BTC/USDT futures settings provide no performance results to assess the strategy.

Tags

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