Tops/Bottoms

The Tops/Bottoms indicator identifies early-phase value buy and sell opportunities by detecting price extremes relative to historical volatility.

Usage

The Usage section describes how the script can be used to identify potential market reversals or trend continuation entries. The indicator plots visual markers on the chart to signal when price has reached a statistical extreme and begun to revert.

• Potential Bottoms: A green star appearing below a price bar indicates a potential local bottom or a value buying opportunity.
• Potential Tops: A red star appearing above a price bar indicates a potential local top or a value selling opportunity.

Users can also utilize these signals within the context of a broader trend. For example, a "top" signal during a strong uptrend may indicate a temporary exhaustion point to add to a position, while a "bottom" signal during a downtrend can serve a similar purpose for short positions.

Details

The script is constructed using logic derived from the Chande Volatility Index (CVI) concept, originally credited to Lazybear. It calculates a normalized value by comparing the current closing price to a Simple Moving Average (SMA) of the median price (HL2). This difference is then divided by the product of the SMA of the Average True Range (ATR) and the square root of the user-defined length.

The resulting oscillator identifies when price has deviated significantly from its mean relative to recent volatility. Signals are triggered when this value crosses back from extreme "Bullish" (oversold) or "Bearish" (overbought) thresholds.

Settings

• Length: Determines the lookback period for the Simple Moving Average of the price and the Average True Range used in the volatility normalization.
• Bullish: Sets the negative threshold used to identify oversold conditions. Values lower than this threshold are considered potential bottoming zones.
• Bearish: Sets the positive threshold used to identify overbought conditions. Values higher than this threshold are considered potential topping zones.

FAQ

How should I interpret the stars on the chart? A red star above a candle represents a potential bearish exhaustion point (top), while a green star below a candle represents a potential bullish exhaustion point (bottom).

Can this indicator be used in trending markets? Yes. In a trending market, signals often represent pullbacks or temporary pauses. Many traders use "top" signals in uptrends as areas to take partial profits or "bottom" signals in downtrends to manage risk.

How do I get access to the Tops/Bottoms indicator? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.