Price Action Reader

The Price Action Reader indicator provides real-time market structure mapping and automated trade signal generation based on price action principles. It helps traders identify trend shifts and high-probability entry points by automatically identifying market structure elements like Breaks of Structure (BOS) and Changes of Character (CHoCH) without the lag associated with traditional oscillators.

Usage

The Usage section describes how the script can be used to interpret price action and market structure.

Market Structure Mapping

The indicator automatically identifies swing highs and lows to determine the current trend.

• HH / HL / LH / LL: Labels Higher Highs, Higher Lows, Lower Highs, and Lower Lows to visualize trend direction.
• BOS (Break of Structure): Occurs when price breaks a swing level in the direction of the current trend, signaling trend continuation.
• CHoCH (Change of Character): Occurs when price breaks a swing level against the current trend, signaling a potential reversal.
• MSS (Market Structure Shift): A CHoCH accompanied by strong displacement (large candle bodies and range), signaling a high-conviction trend change.

Signal Generation

The tool offers two primary types of signals:

• Early MSS Signals: These appear immediately when a displacement-based Market Structure Shift occurs, filtered by trend and volatility settings.
• Balanced Entries (A+ Setups): These require a multi-step confirmation process: a structure break, a retest of the broken level (within a specific ATR tolerance), a rejection candle (long wicks), and an optional confirmation candle.

Filtering and Noise Reduction

To improve signal quality, users can toggle various filters:

• Trend Filter: Requires price to be on the correct side of an EMA.
• Volatility Filter: Prevents signals during low-volatility "chop" by comparing current ATR to its historical average.
• HTF Alignment: Ensures the signal aligns with the trend on a higher timeframe.
• Premium/Discount: Ensures long entries occur in the "discount" zone (lower half) of the recent range and short entries in the "premium" zone (upper half).

Details

The indicator utilizes a "Balanced Entry" logic which waits for price to return to the point of a structure break before signaling an entry. Displacement is calculated by comparing the current candle's body size and total range against its average values (controlled by the bodyMult and rangeMult settings).

The retest logic employs a tolerance band calculated using ATR (retestAtr). If the price exceeds the invalidation threshold (invalidAtr) on the opposite side of the broken structure, the setup is discarded to prevent trading failed breakouts.

Settings

General Settings

• Swing Left / Right: The number of bars required on each side of a high or low to confirm a swing point.
• ATR Length: The lookback period for Average True Range calculations used in volatility and retest filters.
• Show Swings: Toggles the display of HH, HL, LH, and LL labels.
• Show Structure: Toggles the display of BOS, CHoCH, and MSS lines and labels.
• Show Early MSS: Toggles the filtered early reversal signals.
• Show BUY / SELL Arrows: Toggles the main balanced entry signals.

Displacement & Rejection

• Displacement Body Multiplier: How much larger a candle body must be compared to its average to count as displacement.
• Displacement Range ATR: The minimum candle range (high to low) required for a displacement move, relative to ATR.
• Rejection Wick Multiplier: The required length of a wick relative to the candle body to qualify as a rejection candle.
• Retest Tolerance ATR: How close price must get to a broken level to trigger a "retest" signal.

Filters

• Use EMA Trend Filter: Enables a trend filter based on the price position relative to an EMA.
• Use Chop / Volatility Filter: Filters out signals when market volatility is below a specific threshold.
• Require HTF Alignment: Filters signals based on the trend of a higher timeframe.
• Use Premium / Discount Filter: Restricts signals to the favorable half of the recent price range.

FAQ

How do I interpret the MSS signal versus the BOS signal? A BOS (Break of Structure) indicates that the existing trend is continuing, while an MSS (Market Structure Shift) suggests that the trend is reversing with significant momentum.

Why did a signal disappear or fail to trigger during a retest? Signals may be invalidated if the price moves too far beyond the structure level (exceeding the Invalidation ATR) or if the setup takes too many bars to develop (exceeding the Max Bars Waiting Retest).

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