Combining a 123 Reversal Pattern with Reverse-Engineered RSI

Summary

This strategy combines a short-term price reversal pattern with an RSI-based reversal signal. Its 123 module looks for a change in the direction of recent closes and checks a smoothed stochastic reading against a reference level. A second module reverse-engineers a price level associated with a selected RSI value, then assigns a bullish or bearish state depending on its relation to the current close. A trade is opened only when both modules indicate the same direction; otherwise, the strategy closes open positions. An option can invert the resulting signals.

The document gives configurable indicator parameters and published BTC/USDT futures backtest dates, but includes no return, drawdown, or trade-count evidence. Its discussion notes that reversal signals can lag, trading costs can rise with overtrading, and individual equities may require fundamental review. It also suggests validating and tuning the method in backtests before live use. The stated claims of improved accuracy are not supported by reported test results, so the combined rules should be treated as a hypothesis to evaluate across markets and conditions.

Key ideas

• The method requires agreement between a close-price reversal pattern and a reverse-engineered RSI signal.
• The 123 module uses recent close relationships and a smoothed stochastic comparison to assign direction.
• The RSI module derives a reference price from a chosen RSI value and compares it with the current close.
• When the modules disagree, the strategy closes positions; an option can reverse the combined direction.
• Published backtest settings are provided, but no measured performance results are reported.

Tags

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