Combining the 123 Reversal Rule with Future Lines of Demarcation

Summary

This strategy combines a short-term 123 reversal rule with a trend signal from a Future Line of Demarcation (FLD). The reversal component looks for a two-day closing-price pattern and uses fast and slow stochastic readings around a threshold to determine direction. The FLD component compares the current close with a price series shifted by a cycle-based period; the document describes FLD lines as prices displaced forward by roughly half a cycle. A position is taken only when both components agree, and the strategy closes positions when they do not.

The note presents the approach as intended for index futures and medium-to-short holding periods, but its published backtest settings are for BTC/USDT futures. It supplies no performance statistics or evidence for the stated stability and profit claims. It flags false reversal signals and inaccurate cycle estimates as risks, and proposes added confirmation, parameter comparisons, stop losses, and testing across instruments. The method’s results may depend heavily on market, period, and implementation details.

Key ideas

• The strategy requires agreement between a reversal signal and an FLD direction signal before holding a position.
• The reversal rule combines a two-day closing-price pattern with stochastic conditions.
• An FLD compares price with a series displaced by approximately half a selected cycle.
• The document identifies false reversals and poor cycle estimates as important failure modes.
• No backtest outcome is reported, so the described profit and stability claims remain unsubstantiated.

Tags

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