Reversal

The Reversal indicator identifies candlestick patterns that signal potential market exhaustion and subsequent price reversals by tracking extreme price closes relative to a defined lookback period. It provides traders with actionable signals when price action deviates significantly from a prevailing trend and confirms a breakout from specific high or low thresholds.

Usage

The Usage section describes how the script can be used to pinpoint turning points in the market. Traders can utilize this tool to spot entries where a trend may be losing momentum.

• Bullish Reversals: These occur when the indicator first identifies a candle with the lowest close within the "Candle Lookback" period. A bullish signal is triggered if the price subsequently closes above the high of that specific "extreme" candle within the "Confirm Within" window.
• Bearish Reversals: These occur when the indicator identifies a candle with the highest close within the "Candle Lookback" period. A bearish signal is triggered if the price subsequently closes below the low of that "extreme" candle within the "Confirm Within" window.

The tool is effective across various timeframes and assets, helping to filter out market noise by requiring price to break specific confirmation levels before a signal is plotted.

Details

The script follows a specific logic to ensure the validity of a reversal pattern. First, it scans for an extreme candle—a candle whose close is lower (for bullish) or higher (for bearish) than all other candles in the user-defined lookback period.

Once this anchor candle is established, the script monitors the subsequent price action. If the price fails to break the anchor candle's high/low within the "Confirm Within" period, the potential setup is discarded. Furthermore, if the price makes a new extreme (dropping below the low of a potential bullish anchor or rising above the high of a bearish anchor) before confirmation, the current setup is invalidated and the search resets. This ensures signals are only generated when momentum genuinely shifts.

Settings

• Candle Lookback: Determines the number of previous candles used to identify the highest or lowest closing price. Higher values require a more significant price extreme to trigger a setup.
• Confirm Within: Specifies the maximum number of candles allowed to pass after the extreme candle for a confirmation breakout to occur.
• Non-Repainting Mode: When enabled, signals will only appear after a bar has closed, ensuring the signal does not disappear if price fluctuates during the live candle.

FAQ

How do I adjust the sensitivity of the signals? You can increase the "Candle Lookback" to find more significant historical reversals or decrease the "Confirm Within" setting to require a more immediate price response.

What is the difference between standard and Non-Repainting mode? Standard mode displays signals in real-time as soon as the conditions are met, while Non-Repainting mode waits for the candle to close to ensure the signal is confirmed and permanent on the chart.

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