A Reversal Indicator Using Candle Patterns, Price Extremes, and Stochastic

Summary

This indicator identifies potential bullish and bearish turning points by requiring a candle reversal pattern, a nearby price extreme relative to a wider lookback, and a recent stochastic reading in an extreme zone. For a long signal, a bullish candle follows a bearish one, closes above the prior candle’s open, recent lows extend below older lows, and stochastic has recently been below 20. The short setup mirrors this logic at highs, using an overbought threshold above 80.

The document provides ProBuilder code that plots arrows when the conditions align. It does not include chart examples, backtest results, or guidance on exits, position sizing, or stop placement. The conditions identify possible reversals but do not establish that a turn will follow; thresholds and lookback windows may need testing for the instrument and timeframe being traded.

Key ideas

• Long signals require a bullish reversal candle, a close above the previous bearish candle’s open, a recent low extreme, and recent oversold stochastic readings.
• Short signals use the corresponding bearish candle pattern, a recent high extreme, and recent overbought readings.
• The indicator plots arrows when all conditions for either direction are met.
• The document provides no performance evidence or trade management rules.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.