Combining 123 Reversals with Kaufman Adaptive Trend Filtering

Summary

This short-term strategy combines a 123 price reversal setup with a Kaufman adaptive moving average (KAMA). The reversal component looks for a two-step change in closing-price direction and applies stochastic oscillator conditions around a level of 50. The source code’s specific conditions use fast and slow stochastic relationships, then combine that signal with KAMA direction; positions are opened only when both components agree and closed when they no longer align.

The document explains the intended roles: the reversal pattern seeks quick turning points, while KAMA adjusts its responsiveness to market movement to filter noise and indicate the broader direction. It provides parameter defaults and a brief BTC/USDT futures backtest configuration, but no performance results, so it does not establish profitability. The authors identify sensitivity to parameter choices, whipsaw risk in sideways markets, delayed signals from a slow average, and volatility from entering against a strong trend. Stop losses and sentiment filters are suggested as possible additions, not evaluated features.

Key ideas

• The entry signal requires agreement between a 123 reversal condition and the KAMA trend direction.
• The reversal rules use recent closing-price relationships and stochastic fast or slow lines relative to a threshold.
• KAMA is intended to adapt its speed to market activity and help filter noisy moves.
• Overly sensitive reversal settings can cause frequent losing trades in sideways conditions.
• The document gives backtest settings but reports no measured performance.

Tags

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