A Three-Line-Break Reversal Indicator Using a Two-Line Price Cloud

Summary

This indicator adapts three-line-break price representation into a two-line cloud built from closing prices. While the trend is bullish, a close below the cloud’s lower boundary changes the state to bearish; during a bearish trend, a close above the upper boundary changes it to bullish. The accompanying code maintains recent close levels and trend state, then plots the two boundaries in trend-dependent colors and marks changes in trend.

The author describes it as a price-action indicator and suggests filtering signals with longer-term trend analysis, for example with Supertrend. The material provides implementation logic but no backtest, market-specific evaluation, parameter study, or evidence that the reversal signals are profitable. As a result, it explains how the indicator defines and displays reversals, while leaving its practical reliability and suitability for trading unestablished.

Key ideas

• The indicator represents price action with two closing-price levels that form a cloud.
• A close through the opposite cloud boundary changes the indicated trend direction.
• The plotted boundaries and background mark trend direction and state changes.
• The author suggests filtering reversal signals with a longer-term trend indicator.
• The document gives no performance testing or profitability evidence.

Tags

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