Reversal Indicator

The Reversal Indicator tool identifies potential market turning points by highlighting candles that exhibit extreme volatility and price rejection at key boundaries. It aims to provide traders with high-probability signals for bullish and bearish trend reversals based on price action relative to dynamic volatility bands.

Usage

The indicator provides visual cues directly on the chart to signal potential and confirmed reversals:

• Reversal Candles ("R"): A green "R" appears below a candle for a potential bullish reversal, while a red "R" appears above for a potential bearish reversal. These signals occur when price breaches a Bollinger Band and closes back within it.
• Checkmarks (✓): These appear when the candle following a signal candle confirms the reversal. A bullish confirmation occurs when the price closes above the high of the signal candle; a bearish confirmation occurs when the price closes below the low of the signal candle.
• Trend Bars: Users can enable red/green bar coloring based on a SuperTrend calculation to maintain perspective on the broader market direction while looking for reversal opportunities.
• RSI Confluence: When enabled, reversal signals will only be displayed if the Relative Strength Index (RSI) is simultaneously in an overbought or oversold condition, adding a secondary layer of verification.

Details

The core logic of the Reversal Indicator relies on the mean-reversion properties of Bollinger Bands. It specifically looks for "outside-in" price action:

1. Bullish Reversal: Price must first penetrate the lower Bollinger Band on a bearish candle, followed by a bullish candle that closes back inside the band.
2. Bearish Reversal: Price must first penetrate the upper Bollinger Band on a bullish candle, followed by a bearish candle that closes back inside the band.

The confirmation logic (checkmarks) requires a price breakout past the signal candle's wick to ensure momentum has shifted. The integration of RSI allows traders to filter for signals that occur only during deep cyclical extremes.

Settings

Reversal Bar

• BBands Length: Sets the lookback period for the Bollinger Bands calculation (Default: 19).
• BBands Multiplier: Determines the standard deviation distance for the bands (Default: 2.0).
• Show Checkmarks: Toggles the visibility of the "✓" confirmation signals.

Trend Bars

• Show TrendBars: Enables or disables bar coloring based on the SuperTrend.
• ATR Length: The period used for the Average True Range in the trend calculation.
• Factor: The multiplier used for the SuperTrend offset.

RSI

• RSI Confluence: If checked, signals only appear if the RSI crosses the oversold/overbought thresholds.
• RSI Length: The lookback period for the RSI calculation.
• RSI Oversold/Overbought: Threshold levels (30/70) for determining extreme conditions.

FAQ

How do I use the checkmark signals?

The checkmark signals are intended to serve as a confirmation that the reversal has already begun. Traders often wait for the candle next to the initial "R" signal to close with a checkmark before considering a trade entry.

Can I filter signals using RSI?

Yes, by enabling "RSI Confluence" in the settings, the indicator will filter out any reversal signals that do not coincide with an RSI crossover of the oversold or overbought levels.

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.