Combining a 123 Reversal Signal with TEMA Trend Filtering

Summary

This approach combines a price reversal rule based on recent closes and the stochastic oscillator with a Triple Exponential Moving Average (TEMA) direction filter. The reversal component produces a bullish or bearish state from a two-step change in closing prices and stochastic readings around a configurable midpoint. Separately, price above TEMA indicates a long bias and price below it a short bias. A position is taken only when both components agree; otherwise, the strategy closes its positions. TEMA is calculated from three successively smoothed exponential averages.

The listed defaults include a 14-period stochastic length, a midpoint of 50, and a 26-period TEMA. A BTC/USDT futures backtest configuration is supplied for a brief sample, but no results or evaluation metrics are reported. The document notes that reversal signals can miss sustained advances, TEMA can mislead, and poorly chosen parameters can make signals scarce. It offers no detailed position sizing or stop-loss method, so risk controls and out-of-sample evaluation remain necessary considerations.

Key ideas

• The strategy requires agreement between a stochastic-based reversal state and the TEMA direction signal.
• The reversal logic uses changes in closing prices over two steps and stochastic readings relative to a threshold.
• Price above TEMA supports a long state, while price below TEMA supports a short state.
• When the combined signal is neutral, the implementation closes open positions.
• The supplied backtest settings contain no reported performance results, and the strategy specifies no detailed stop-loss plan.

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