Trend Reversal Probability Calculator

The Trend Reversal Probability Calculator indicator is a technical analysis tool that estimates the likelihood of a trend change by analyzing the slope divergence between multiple short-term moving averages and a long-term baseline.

Usage

The indicator is used to identify early signs of trend exhaustion and potential reversals. It displays a dashboard in the top-right corner showing the current trend direction and the calculated probability of a reversal in the opposite direction.

• Identifying Reversals: A bullish reversal signal is generated when a specific number of short-term moving averages (MAs) begin sloping upward while the long-term MA is still sloping downward. Conversely, a bearish reversal signal occurs when short-term MAs slope downward against a rising long-term baseline.
• Trend Confirmation: The indicator labels "Bull" and "Bear" when the long-term trend itself shifts direction based on its Rate of Change (ROC).
• Visual Analysis: Traders can use the integrated MA ribbon to visualize trend strength; a tightening ribbon often precedes the reversal signals identified by the probability calculator.

Details

The script utilizes 11 moving averages. The 11th MA (defaulting to 200 periods) serves as the primary trend anchor. The indicator calculates the Rate of Change (ROC) for every MA to determine its instantaneous slope.

A "Reversal Probability" is derived by counting how many of the first 10 MAs are sloping in the opposite direction of the 11th MA. For example, if the long-term trend is bearish but 7 out of 10 short-term MAs are sloping upward, the tool indicates a 70% reversal probability. When this count crosses the user-defined "Reversal sensitivity" threshold, a reversal label is plotted on the chart.

Settings

Moving Averages

• Length 1-11: Sets the lookback periods for the 11 individual moving averages used in the calculation. Length 11 is typically reserved for the long-term trend anchor.

Trend

• ROC length (Trend sensitivity): Determines the lookback period for calculating the slope (Rate of Change) of the moving averages. Higher values result in smoother, less reactive signals.
• Reversal sensitivity (1 to 9): Sets the threshold for how many short-term MAs must diverge from the long-term trend before a reversal signal is triggered.

Graphics

• Show MA lines: Toggles the visibility of the individual moving average lines.
• Show MA Ribbon: Toggles the visibility of the shaded area between the moving averages.

FAQ

How do I interpret the Reversal Probability percentage?

The percentage represents the ratio of short-term moving averages currently moving against the primary long-term trend. A higher percentage suggests stronger momentum building for a potential reversal.

What do the "Bull" and "Bear" labels signify compared to "Reversal" labels?

"Bull" and "Bear" labels indicate that the long-term anchor MA has officially changed direction. "Reversal" labels are leading indicators that trigger when short-term momentum shifts before the long-term trend does.

How can I access the Trend Reversal Probability Calculator?

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