Candlestick Reversal System

The Candlestick Reversal System indicator identifies high-probability turning points in the market by automating four distinct reversal patterns derived from Franklin Ochoa's "Secrets of a Pivot Boss."

Usage

The Usage section describes how the script can be used to identify potential market reversals across different volatility and price action conditions. This tool is designed to highlight specific candle structures that often precede a change in trend direction.

Reversal Types

• Wick Reversal: Focuses on candles with long tails (wicks), indicating price rejection. These signals appear when a wick is significantly larger than the candle body at a swing high or low.
• Extreme Reversal: Identifies "blow-off" or climax candles. It looks for candles with exceptionally large bodies relative to the recent average, followed by a reversal candle.
• Outside Reversal: Detects "Engulfing" style patterns where the current bar's range completely exceeds the previous bar's range, while closing beyond the previous high or low.
• Doji Reversal: Locates Doji candles (where open and close are nearly identical) occurring at key levels, signaling market indecision before a new move.

The indicator is best used on higher timeframes or in conjunction with pivot levels to confirm structural support and resistance.

Details

The script implements logic based on the quantitative definitions provided in Franklin Ochoa’s work. Each system uses specific mathematical thresholds to validate a pattern:

• Wick Multiplier: Uses a ratio of the wick length to the body size to ensure the rejection is significant.
• Pivot Filter: Signals are only displayed when the pattern occurs at a local high or low (defined by the "Length to Highest/Lowest" setting), reducing noise in sideways markets.
• Normalization: For Extreme and Outside reversals, the script calculates a Simple Moving Average (SMA) of recent candle ranges to ensure the "extreme" nature of the bar is relative to current market volatility.

Settings

General Settings

• Length to Highest/Lowest: Determines the lookback period for identifying local pivot highs and lows.
• SMA: Toggles an optional Simple Moving Average on the chart.
• SMA Length: Sets the period for the optional SMA.

Wick Reversal System

• Enable Wick Reversal System: Toggles this specific pattern detection.
• Wick Multiplier: Sets the required ratio of the wick length relative to the body.
• Body Percentage: Defines the maximum allowed size of the body relative to the total candle range.

Extreme Reversal System

• Enable Extreme Reversal System: Toggles this specific pattern detection.
• Body Size: Sets the minimum body-to-range ratio for the "extreme" candle.
• Bars Back: The lookback period used to calculate average candle size.
• Body Multiplier: How many times larger the candle must be compared to the average to qualify as "extreme."

Outside Reversal System

• Enable Outside Reversal System: Toggles this specific pattern detection.
• Bar Multiplier: Sets the required size of the outside bar relative to the historical average.
• Bars Back: Lookback period for volatility calculations.

Doji Reversal System

• Enable Doji Reversal System: Toggles this specific pattern detection.
• Body Percentage: Defines the maximum body size allowed for a candle to be classified as a Doji.

FAQ

How do I interpret the signals on the chart? Green upward triangles represent bullish reversal signals occurring at local lows, while red downward triangles represent bearish reversal signals occurring at local highs.

Can I use multiple reversal systems at once? Yes, the script allows you to toggle any combination of the four systems. When multiple systems are active, a signal from any enabled system will trigger a plot.

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