Mean Reversion Signals (v6.4) – VWAP ±SD

The Mean Reversion Signals (v6.4) – VWAP ±SD indicator identifies potential reversal points by combining volume-weighted average price (VWAP) standard deviation bands with RSI momentum and trend filters.

Usage

The Mean Reversion Signals tool is designed to catch high-probability entry points when the price deviates significantly from its mean (VWAP). A "BUY" signal is generated when the price is below the lower VWAP band, the RSI crosses above a specific threshold, and volume/ATR conditions are met while staying above the long-term trend. Conversely, a "SELL" signal triggers when the price is above the upper VWAP band and momentum shifts downward.

For enhanced results, users can pair this indicator with support and resistance levels on lower timeframes, such as the 5-minute chart, to confirm reversal zones.

Details

The script utilizes a multifaceted confirmation approach:

• Mean Reversion: Uses VWAP and Standard Deviation bands to identify overextended price action.
• Momentum: An RSI crossover ensures that momentum is shifting in the direction of the trade before a signal is printed.
• Trend Filtering: An EMA 200 filter ensures that signals align with the broader market direction to avoid counter-trend traps.
• Volatility & Volume: Volume must exceed its moving average, and the ATR must be rising (optional) to ensure the move has sufficient participation and volatility.
• Execution: A cooldown period is implemented to prevent signal clustering during periods of high volatility.

Settings

Core Parameters

• EMA Long-Term: Sets the period for the trend-filtering Exponential Moving Average.
• RSI Length: Defines the lookback period for the Relative Strength Index.
• RSI Cross Above (Buy): The level the RSI must cross above to confirm a bullish reversal.
• RSI Cross Below (Sell): The level the RSI must cross under to confirm a bearish reversal.
• VWAP StdDev Lookback: The period used to calculate the standard deviation for the VWAP bands.
• VWAP StdDev Multiplier: Adjusts the width of the mean reversion bands (typically between 1.0 and 2.0).

Filters & Logic

• Volume MA Length: The period for the Volume Moving Average.
• Volume Multiplier: The threshold factor the current volume must exceed relative to the average.
• ATR Length: The period used for the Average True Range calculation.
• Use ATR Rising Filter?: When enabled, signals only trigger if ATR is increasing, indicating rising volatility.
• Cooldown Bars: The minimum number of bars required between consecutive signals.

FAQ

How do I access Mean Reversion Signals (v6.4)?

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

What timeframe is best for this indicator?

While it can be used on various timeframes, it is optimized for intraday trading, specifically the 5-minute timeframe, when combined with support and resistance levels.

Why didn't a signal appear when price touched the band?

A signal requires multiple conditions to be met simultaneously: the RSI must cross the threshold, volume must be sufficient, and the price must be on the correct side of the 200 EMA.