Catching Trend Reversals by shorting tops and buying bottoms

The Catching Trend Reversals by shorting tops and buying bottoms indicator is a technical tool designed to identify potential trend exhaustion and reversal points based on the HOLP (High of the Low Period) and LOHP (Low of the High Period) concepts. It helps traders pinpoint entries at extreme price levels during trending markets to capture significant trend shifts.

Usage

This indicator is primarily used to identify overextended markets where a reversal is likely to occur. It follows a specific methodology inspired by John Carter’s "Mastering the Trade":

1. Trend Identification: The indicator monitors whether the current price is making a new high or low over a user-defined "Trending Period" (default is 20 bars).
2. Visual Cues: When a new high is established within the period, a red downward triangle appears above the candle. Conversely, when a new low is established, a green upward triangle appears.
3. Entry Logic: For a short trade, traders identify the high bar in an uptrend; a short position is considered when price action closes below the low of that specific high bar. The process is reversed for long positions.
4. Exit/Stop Loss Management: The initial stop is typically placed at the high/low of the extreme bar. Users can enable a 2-bar trailing stop visualization (white crosses) to manage the trade once it has progressed.

Details

The script implementation is based on the HOLP and LOHP logic, which focuses on the relationship between price extremes and subsequent breakouts. It calculates specific push levels (Swing Highs and Lows) over a lookback window to define the boundaries of the current trend. Additionally, the script incorporates elements of the Accumulation Swing Index (ASI) calculation to filter price movement and volatility, ensuring that the identified reversal points have technical merit behind them.

Settings

• Periods: Adjusts the lookback window used for calculating the underlying push high and push low levels.
• Trending Period: Defines the number of bars used to determine if the market is making a significant new high or low (used for triangle signals).
• 2 bar trailing stop when shorting: Enables a cross-style plot representing a trailing stop for short positions based on the highest high of the last two bars.
• 2 bar trailing stop when buying (going long): Enables a cross-style plot representing a trailing stop for long positions based on the lowest low of the last two bars.

FAQ

How do I interpret the triangles?

The triangles indicate that the market has reached a new peak or trough within the specified Trending Period. A red downward triangle suggests a "top" is forming, while a green upward triangle suggests a "bottom" is forming.

What are the blue circles on the chart?

The blue circles represent the "Push High" and "Push Low" levels, which act as dynamic boundaries for the current price action range.

How can I access Catching Trend Reversals by shorting tops and buying bottoms?

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