Screenulator's Patent Pending Trend Reversal Indicator Visualization Tool!
Trend Reversal Indicator
Screenulator's unique Trend Reversal indicator is based on the works 9,13 count indicator, a highly sought after technical analysis tool by the institutional and professional traders since 1990s. However, it has been available exclusively on professional platforms such as Bloomberg, making its use among average retail investors rare.
Trend Reversal Indicator is based on counting price candlesticks or bars in anticipation of trend Reversal or Exhaustion. It has an impressive record of identifying and anticipating turning points across the FX, bond, equity and commodity markets. The Reversal predicts the Reversal pattern, whereas Exhaustion anticipates trend Exhaustion.
Reversal
A Buy Reversal consists of 9 consecutive bars satisfying the following criteria:
Each bar's close is lower than the close four price bars earlier.
The opposite is for Sell Reversal.
After 9th bar, it is called "Reversal Complete", and Exhaustion can start.
Perfected condition: A buy Reversal is perfected when the low of either price bar 8 or 9 is less than the lows of both price bars 6 and 7.
Buy signals are generated when Buy Reversal is complete, and vice versa for Sell signals. A perfect Reversal is considered a stronger and more reliable signal.
Screenulator has the most visually intuitive display of indicator by showing color coded gradient color bars with increasing brightness as Reversal count increases, and an arrow when complete, a dot or small circle to indicate perfected condition. This is a patent pending feature only available at Screenulator's or Interactive Stock Charts app. Some other tools writes count numbers below price bars or only show signal arrows at the end of a Reversal or Exhaustion. Screenulator's indicator shows full information in a clear and concise manner.
Figure below shows an example of Buy Reversal complete with perfected condition. Notice the gradually brightening green bars indicate Buy Reversal counts, with the 9th count being an bright up arrow indicating it is complete. Further, a circle above the 9th count indicate it is a perfect Buy Reversal. The red bar below (in the second row) is the Exhaustion start - first bar with count 1. After next 3 bars shows Sell Reversal counts because price action started reversing.
Exhaustion
Exhaustion can start after a completed Reversal consisting of 13 bars (does not have to be consecutive) if it satisfies the following critiera:
A buy Exhaustion consists of 13 price bars whose close is lower than or equal to the low two bars earlier.
The opposite is for Sell Reversal.
A Exhaustion occurs after a completed Reversal. It is best associated with trend exhaustion, if a trend continues after a trend reversal (Reversal), how long it can keep going until it is exhausted? The Exhaustion is a bigger pattern than the Reversal in that it can take months for a Exhaustion to form and often signifies a larger market move once the trend changes. Signals generated by Exhaustion is usually not as reliable as Reversal, but when right the move is much bigger and longer in duration, leading to a long term bull / bear reversal.
Like the Reversal, the Exhaustion also has perfected condition. For a buy Exhaustion this requires that the low of price bar 13 be less than or equal to the close of price bar 8. Inverse is for the sell Reversal.
The placing of stoploss levels is a crucial component of the Sequential Indicator and they are generated automatically only after the completion of a Exhaustion. For a buy signal, their level is calculated by identifying the lowest price bar of the entire Exhaustion (whether numbered or not) and then subtracting the low of that price bar from its high, or the prior price bar's close, whichever is the greater. This value is in turn subtracted from the low of that same price bar and the critical stop loss level is established. The stop
loss is only executed when there is a close above the stop loss level followed by a close below it. The next price bar must also open below the stop loss but must also have a low that is below its open.
Screenulator's Trend Reversal display shows Exhaustion on the 2nd row below Reversal. The colors gradient is the same as Reversal - green indicating Buy Exhaustion, and red for Sell Exhaustion, with increasing brightness. No Sell and Buy signals can overlap by definition.
The figure below shows an example of Sell Exhaustion after a completion of Sell Reversal. Notice there is a gap between 6 and 7th Exhaustion counts. In many cases in practice, there can be more gaps and farther apart spanning weeks or months. The 13th's Exhaustion bar becomes a downward arrow because it is complete. There is no dot / circle above the indicator because in this case Exhaustion is not perfect.
How to trade
There are many ways to make use of the Reversal Indicator to profit from the market.
The simplest way to use it as trading signal. Since "Reversal" Complete is considered a Reversal indicator, and "Exhaustion" Complete is considered Exhaustion indicator. For a trend trader, use Sell Reversal complete to enter position on a bull market correction, and exit on Exhaustion complete as it marks trend exhaustion. The opposite for a bear market.
For more detailed and advanced examples: Trend Reversal Reference