Combining a 123 Reversal Pattern with a Recursive Trend Average

Summary

This composite system combines a 123-style reversal signal with a recursive moving trend average. The reversal component uses consecutive price changes alongside stochastic oscillator conditions; the trend component recursively updates an estimated price and compares it with the prior close to determine direction. The code combines the components only when both agree, entering long or short, and closes positions when they no longer produce a shared directional signal. The published test settings specify BTC/USDT futures on an hourly chart during January 2024, but no performance results are supplied.

The document presents the combination as a way to pair reversal timing with directional filtering, while acknowledging that the signals may conflict, react poorly to short-term noise, or respond slowly to sudden events. Its written summary of the 123 rules differs in places from the code's stochastic comparisons, so the precise signal definition warrants verification. No automatic stop-loss appears in the supplied strategy; adding one and evaluating alternate periods are suggested as possible improvements.

Key ideas

• The 123 component combines recent consecutive price moves with stochastic oscillator conditions to identify reversal setups.
• The recursive trend component estimates price from current and past values, then assigns direction by comparison with the prior close.
• The source takes directional positions only when both components agree and closes positions when they do not.
• The document notes noise, delayed response to sudden events, conflicting signals, and the absence of reported performance results.
• The written description and code differ on aspects of the stochastic conditions, so the exact reversal rule should be checked.

Tags

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