UCS_Top & Bottom Candle

The UCS_Top & Bottom Candle indicator identifies potential swing highs and lows by combining stochastic momentum with relative price changes to pinpoint trend exhaustion and reversals.

Usage

The Usage section describes how the script can be used to identify market turning points. The indicator outputs a combination of a Stochastic Momentum Index (SMI) and a momentum histogram to filter entry signals.

• Long Signals: Occur when the SMI is below the oversold threshold (-35) and the momentum histogram crosses above the zero line. This indicates that price has reached a local bottom and is starting to regain upward strength.
• Short Signals: Occur when the SMI is above the overbought threshold (35) and the momentum histogram crosses below the zero line. This suggests the price has reached a local top and is beginning to lose strength.

When these conditions are met, the indicator changes the color of the price bars (green for long setups and red for short setups) to highlight the specific candle where the reversal was detected. Traders can use the SMI signal line crossovers in conjunction with the overbought/oversold levels (±40) to gauge the intensity of the current swing.

Details

The script utilizes a modified Stochastic Momentum Index (SMI) calculation. It determines the relative position of the current close compared to the midpoint of the high/low range over a specified lookback period. This value is then smoothed using a double Exponential Moving Average (EMA) to reduce noise and provide a clearer trend direction.

Simultaneously, the script calculates a momentum value based on the percentage change of price relative to a previous bar. This acts as a confirmation filter; the SMI identifies the extreme price zone, while the momentum histogram ensures the trade is only signaled when the price begins to move in the anticipated direction. The combination of these two metrics helps in filtering out premature entries during strong trending moves that may stay in overbought or oversold territory for extended periods.

Settings

• Percent K Length: Sets the lookback period for calculating the highest high and lowest low used in the momentum calculation.
• Percent D Length: Sets the smoothing period for the double EMA applied to the SMI and defines the period for the momentum and signal line calculations.

FAQ

How do I interpret the colored bars?

Colored bars indicate that both the stochastic momentum is at an extreme level and the price momentum has shifted direction. A green bar suggests a potential bottom, while a red bar suggests a potential top.

What do the overbought and oversold levels represent?

The levels at 40 and -40 represent extreme price extensions. When the SMI line enters these zones, it suggests the current swing may be overextended and a reversal could be imminent.

How can I access this indicator?

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