Reversal Indicator (actual, Not Predictive)

[Guest market_machine]

I think I've seen this before, but not sure where. I am looking for a reversal indicator, that shows the strength of a reversal. Not looking for something that is predicting a reversal, but shows the actual strength of the reversal as it's happening or shortly thereafter. It's okay to have some lag. Does anyone here know of anything like this?

[Tams 20]

  market_machine said:

i think i've seen this before, but not sure where. I am looking for a reversal indicator, that shows the strength of a reversal. Not looking for something that is predicting a reversal, but shows the actual strength of the reversal as it's happening or shortly thereafter. It's okay to have some lag. Does anyone here know of anything like this?

 

macd, rsi, stochastics...

[steve46 12]

Yes, and ironically its right in front of you on your chart.

 

The strength of a reversal is easily seen, in the way that price "leaves" a swing high or low.

 

If for example, price gaps up or down from a swing high or low, (I can only comment about my own training), that is considered the strongest move away from a price.

 

If price moves away from a swing high or low on a wide range bar, or a series of parabolic bars or candles, that would be the second strongest type of move

 

If price moves away from a swing high or low on a series of bars/candles with minor retracements along the way, that would be the next strongest type of move

 

The logic is simple. The relative "strength" of the move shows the trader whether that market is in balance or out of balance. A strong move indicates significant imbalance (one side dominates), a less emphatic move (with periodic retracements for example) indicates a bit of a battle between longs and shorts with one side winning.

 

Requires no indicators, just the ability to observe.

[enochbenjamin 10]

look into market structure. market structure highs on 30 min or higher are pretty reliable indicators that the trend is reversing.

[srberry1 10]

  steve46 said:

Yes, and ironically its right in front of you on your chart.

...

Requires no indicators, just the ability to observe.

 

Yeah, I can definitely see it, but I need a number, not a picture. I'm going to use the values in an analysis I'm doing and I don't want to have to sit there and mark each reversal by hand.

[bobcollett 10]

Dear market_machine,

What steve46 says is correct.

He just left out the most important part of a reversal.

There must be a TEST of the high/low.

My trading plan says - no trade till the extreme is tested , whether its just below or just above the extreme. There is always a TEST.

And sometimes the test takes a few days.

Half-hearted moves are RETRACEMENTS

A gap is a very strong reversal. But gaps close.

So the trade is simple.The chart makes a swing high/low.

Look back.

Has it been there before . NO!

Wait for price to test it.

YES. Fade the extreme with a money stop in the oposite direction.

Now I know sometimes there is no test

In fact quite often there is no test.

But my plan says -no trade without a test.

So theres the REVERSAL indicator

No wonder I get board waiting !!

Kind regards

bobcollett

[Kiwi 16]

  steve46 said:

Yes, and ironically its right in front of you on your chart. //////

 

The logic is simple. The relative "strength" of the move shows the trader whether that market is in balance or out of balance. A strong move indicates significant imbalance (one side dominates), a less emphatic move (with periodic retracements for example) indicates a bit of a battle between longs and shorts with one side winning.

 

Requires no indicators, just the ability to observe.

 

And in your market at a particular timeframe you may discover oddities like this:

 

1 bar over twice the recent average range

and no bars that move beyond it ... gives a high probability of reversal

but a couple of bars moving a couple of ticks beyond it ... give a very high probability of retracement only

 

You won't get this with an indicator, You must watch price and be asking yourself why. And studying the distant and recent past for behaviours and changes of behaviours.

[snowbird 10]

  Kiwi said:

1 bar over twice the recent average range

and no bars that move beyond it ... gives a high probability of reversal

but a couple of bars moving a couple of ticks beyond it ... give a very high probability of retracement only

 

....You must watch price and be asking yourself why.....

 

been thinking about this one and came up with one possible scenario:

 

in the first case (assuming price has been climbing), the only thing that comes to mind, is that price must have entered an area of resting supply, that caused

 

a. a large move in a short period of time as price rushed to meet these pending orders, but was then stopped short due to the shear lack of buyers to move any higher (demand is literally is "exhausted" from the previous drive, and completely dries up.)

 

b. a quick and violent reversal as price falls back into the temporary "vacuum" created by the lack of demand

 

This could also be viewed as a V top, which can be rare in many markets.

 

Are there more common scenarios you were referring to in your example or in some markets?

 

snowbird

[BlowFish 10]

  srberry1 said:

Yeah, I can definitely see it, but I need a number, not a picture. I'm going to use the values in an analysis I'm doing and I don't want to have to sit there and mark each reversal by hand.

 

There are a couple of variables you can use or you can hold one constant and use the other as a measure. Of course how you sample (slice & dice) the data will largely depend on the reversals that you are interested in analysing.

 

Let's say you are interested in reversals of approximately 10 minutes, you might choose to use 3 minute bars and look at 3 bar reversals. It is not hard to conceive that a 10 point reversal (i.e price travels 10 points from the swing high 3 bars ago) is stronger than 3.25 points in a 3 bars reversal.

 

Price is the obvious 'indicator'. If price moves '23 ticks' away from an extreme that is stronger than if it moves '22 ticks' away. Conversely you might hold price constant and see how long it takes for a move away from an extreme. In this case you might conclude that a 10 point move away from an extreme that takes 3 minutes is stronger than a 10 point move that takes 5 minutes.

 

There is really no need to use fancy derivatives (indicators) of price or time when you have......price and time. There are other variables that you might want to sample against e.g. volume, ticks, market delta.