Engulfing Reversal Market Phase

The Engulfing Reversal Market Phase indicator identifies bullish and bearish market cycles by detecting complex engulfing reversal patterns to help traders stay on the right side of the prevailing trend.

Usage

The indicator can be primarily used as a trend filter for trade execution. When the indicator displays a green step-line (positive value), the market is considered to be in a bullish phase, suggesting that traders should prioritize long positions. Conversely, when the indicator displays a red step-line (negative value), the market is in a bearish phase, suggesting a focus on short positions.

Beyond simple trend filtering, the script can identify:

• Trend Reversals: Signals when a market cycle shifts from bullish to bearish or vice-versa.
• Trend Continuations: Patterns that occur within an existing trend, confirming its strength.
• Breakout Patterns: Detection of significant price moves that clear previous highs or lows.

Details

The script utilizes a logic that goes beyond standard two-candle engulfing patterns. It incorporates a lookback mechanism that accounts for "inside bars," allowing it to detect three-candle and multi-candle patterns where the reversal develops over a sequence of bars.

A Bullish Engulfing phase is triggered when the current candle closes above the high of the bars that established a recent peak. A Bearish Engulfing phase is triggered when the current candle closes below the low of the bars that established a recent trough. The indicator maintains its current state until a contrary engulfing pattern is detected, providing a persistent "market phase" visual using a step-line plot.

Settings

• Filter line: While there are no user-input parameters in the script's calculation logic, the visual appearance of the "Filter line" can be adjusted in the Style tab.
• Alerts: The script includes built-in alert conditions that trigger upon the start of a new Bullish or Bearish Engulfing Reversal Phase.

FAQ

How do I interpret the step-line colors?

A green line indicates a bullish market phase, while a red line indicates a bearish market phase. Changes in color represent a shift in the detected market sentiment based on engulfing logic.

Can this be used on any timeframe?

Yes, the logic is based on price action and candle relationships, making it applicable across various timeframes and asset classes such as stocks, forex, and crypto.

How do I access Engulfing Reversal Market Phase?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.