Combining a 123 Reversal Pattern with the Smart Money Index

Summary

This strategy combines a price reversal pattern with the Smart Money Index (SMI), taking a position only when both components agree. Its 123 reversal component compares recent closing prices and uses a stochastic oscillator as a condition for long or short signals. The SMI component interprets its movement relative to a moving average as a directional signal. The source implements entries when the two components align and closes positions when they do not.

The document presents the combination as a way to filter trades, but offers no measured evidence for its claimed win rate or profitability. It notes that the reversal pattern can give false signals, the SMI can lag, and requiring agreement may miss strong moves. Parameters include the stochastic lookback and smoothing, an SMI length and resolution, and an option to reverse trades. The published settings identify a short BTC futures test period, but no results are provided; claims about institutional flows should therefore be treated as an interpretation of the indicator, not verified information about investor activity.

Key ideas

• The method requires agreement between a 123 price reversal signal and an SMI direction signal.
• The reversal component uses recent closing price relationships together with stochastic conditions.
• The SMI component derives direction from its movement relative to a smoothed value.
• The source closes positions when the combined signal is neutral.
• The document identifies false signals and indicator lag, and reports no backtest results.

Tags

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