Reversal Points

The Reversal Points indicator is a comprehensive technical analysis tool designed to identify potential trend exhaustion and reversal opportunities by combining Supertrend logic with Donchian Channel dynamics. It serves to filter out noise during major trends and pinpoint specific moments where price momentum is likely to shift, providing clear entry and exit signals on the chart.

Usage

The Reversal Points tool is primarily used to catch the start of a new trend after a significant price move. While it functions across all timeframes, it is particularly effective on higher timeframes such as the 4-hour (4H) or daily (1D) charts where market trends are more established.

Users should look for the following signals:

• Buy Signals: These appear below the price bars when the internal logic detects a bottoming out based on new lows and a subsequent reversal in the Supertrend trend state.
• Sell Signals: These appear above the price bars when the script identifies a potential peak following a series of new highs.

The effectiveness of these signals can be further refined using the built-in RSI filter, which ensures that reversal signals only fire when the market has recently reached overbought or oversold conditions.

Details

The script integrates two core technical concepts:

1. Supertrend Mechanism: Utilizes ATR-based volatility bands to determine the primary trend direction.
2. Donchian Channels (Sensitivity): Tracks the highest highs and lowest lows over a specific lookback period.
3. Switch Logic: The indicator monitors when the price fails to sustain new highs or lows (relative to the "New Low Sensitivity" setting) while the Supertrend is in a specific state. A reversal is triggered when the underlying trend flips, confirming that the momentum has officially shifted.

Settings

Reversal Settings

• New Low Sensitivity: Adjusts the lookback period for the Donchian Channels. Higher values require longer price movements to trigger signals, resulting in fewer but potentially more significant alerts.
• ATR Period: Sets the period for the Average True Range calculation used within the Supertrend component.
• Source: Determines the price input (e.g., HL2, Close) for the Supertrend calculation.
• ATR Multiplier: Controls the distance of the Supertrend bands. A larger multiplier reduces signal frequency by requiring more significant price movement to change the trend state.
• Change ATR Calculation Method?: Toggles between a standard ATR and a simple moving average of the True Range.

RSI Filter

• RSI filter enable: Activates the RSI-based trend exhaustion filter.
• RSI length: The period used for the RSI calculation.
• RSI filter for bottom/top: The threshold levels (e.g., 30/70) that price must cross to qualify a reversal.
• RSI lookback: The number of bars the script looks back to see if the RSI threshold was breached.

FAQ

How do I use the Reversal Points signals?

You can use the Buy and Sell labels as confluence for entering a trade. It is recommended to use them in the direction of the higher timeframe trend or at key support and resistance levels.

Why am I getting very few signals?

If you are seeing very few signals, try decreasing the "New Low Sensitivity" or the "ATR Multiplier". These settings control how "strict" the script is before identifying a reversal.

How can I access Reversal Points?

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