8020 Momentum and Pin Candle

The Momentum and Pin Candle indicator identifies high-conviction momentum candles and potential reversal pin candles based on the 80/20 principle of candle range distribution. It provides traders with clear visual signals for strength and exhaustion by analyzing the relationship between a candle's body and its total range.

Usage

The indicator can be used to identify specific price action setups for trend following or mean reversion:

• Momentum Candles: These appear when the candle body represents 80% or more of the total range. They signify strong directional pressure.
  • Normal Momentum: Marked with a star below (bullish) or above (bearish) the bar.
  • 2x Range Momentum: Identified when the current range is at least twice the size of the previous candle, signaling an exceptional volatility breakout.
• Pin Candles: These appear when the candle body is 20% or less of the total range and the open/close occur near one extreme. These are marked with a "p".
  • Bullish Pin: A long lower shadow suggesting buying pressure and potential reversal at support.
  • Bearish Pin: A long upper shadow suggesting selling pressure and potential reversal at resistance.

Details

The script applies the 80/20 rule to technical price action. In a momentum candle, the high body-to-range ratio indicates that the price finished near its extreme, showing little resistance to the move. Conversely, a pin candle shows that despite an intraday move, the price was rejected back to its starting area, leaving a 20% or smaller body and an 80% or larger shadow.

The indicator logic evaluates:

1. Body vs. Range: Calculated as abs(close - open) / (high - low).
2. Relative Volatility: Compares current high - low to the previous bar's range to detect significant expansion.
3. Positioning: Pin candles require the open price to be within the top or bottom 33% of the total range to ensure the shadow is dominant.

Settings

• Strong 2x Range: Visual toggle for stars appearing on momentum candles that double the previous range.
• Strong: Visual toggle for stars on standard 80% body momentum candles.
• Bullish Pin: Visual toggle for the "p" label on bullish rejection candles.
• Bearish Pin: Visual toggle for the "p" label on bearish rejection candles.

FAQ

How do I use the momentum signals?

Momentum candles are best used for entry confirmation in the direction of the trend or for setting stop losses behind the breakout candle.

When are pin candles most reliable?

Pin candles are most effective when they appear at key support or resistance levels or after a significant retracement against the primary trend.

How can I access this tool?

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