Reversal Knockout v1.1

The Reversal Knockout v1.1 indicator provides a comprehensive framework for detecting price turning points by combining trend-following bar coloring with sequential exhaustion logic. It utilizes smoothed moving averages and sequential counting to identify overextended market conditions and high-probability reversal zones.

Usage

The tool is primarily used to identify exhaustion in an existing trend and anticipate reversals. It categorizes market behavior into four distinct visual phases through bar coloring:

• Bull Trend: Bars colored in the default green/light blue when the fast T3 moving average is above the slow T3 and price is above the slow T3.
• Bear Trend: Bars colored in red when the fast T3 is below the slow T3 and price is below the slow T3.
• Bullish Reversal: Bars highlighted (default blue) when the fast T3 is below the slow T3 but the price has crossed back above it.
• Bearish Reversal: Bars highlighted when the fast T3 is above the slow T3 but price has dipped below it.

Beyond coloring, the indicator tracks "Setups" and "Countdowns":

• Setup (9): Look for the "9" label. This occurs after 9 consecutive bars where the price closes lower (bullish setup) or higher (bearish setup) than the price 4 bars ago.
• Knockout: This is a specialized signal that appears alongside a "9" if specific price excess is detected (e.g., price making a local lower-low or higher-high relative to recent bars). These represent explosive reversal potential.
• Countdown (13): After a setup, the tool counts additional follow-through bars that meet exhaustion criteria. Once 13 are reached, a "13" label appears, signaling a significant exhaustion point where a trend change is likely.

Details

The script is built on the concept of sequential market timing. It uses a triple-smoothed moving average (T3) for trend filtering, which offers lower lag than standard EMAs while maintaining smoothness. The core logic relies on comparing the current price to a historical reference (look-back) to determine if a trend is accelerating to an unsustainable degree.

The "Knockout" logic adds a volatility-based confirmation to the standard sequential count. It checks if the price has pushed beyond the range of the 2nd and 3rd previous bars at the time the Setup 9 completes, indicating a "blow-off" top or bottom.

Settings

Logic Settings

• Bars to Setup: Sets the number of consecutive bars required to complete a Setup (default 9).
• Bars to Look Back: Determines the offset for comparing the current price against historical data (default 4).
• Setup Price Type: Choose which price source (Open, High, Low, Close) to use for setup calculations.
• Countdown Length: Sets the number of follow-through bars required for exhaustion (default 13).
• Countdown Look Back: The reference bar used for the countdown follow-through comparison.

MA Settings

• MA Source: The price source for the T3 moving averages.
• T3 Alpha: The smoothing factor for the T3 calculation; higher values react faster.
• Slow/Fast Length: The period for the respective smoothed moving averages.

FAQ

How do I use the Knockout signal?

The "Knockout" label identifies instances where a sequential setup occurs alongside technical overextension. These are often treated as high-probability entry points for mean reversion or trend changes.

Can I change the colors of the labels?

Yes, the Colors section in the settings allows you to customize the labels for the 9-count, the 13-count, the Knockout signal, and the various trend bar colors.

How can I access Reversal Knockout v1.1?

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