This indicator helps avoid taking reversal trades too close to the 21 EMA, which may fail since the market often continues its trend after retracing from the 21 EMA level. It does not generate a direct signal for reversal trades but rather indicates points where you can consider potential reversal trades based on your trading methodology
This script defines an indicator that calculates the 21 Exponential Moving Average (EMA) and the Average True Range (ATR) for a given period. It then computes the distance between the most recent closing price and the 21 EMA in terms of ATR units. If this distance is equal to or greater than 3 ATRs, a small green circle is plotted below the corresponding bar on the chart, indicating a potential reversal condition.
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Update: This script will plot a red circle above the candle when the distance is greater than or equal to 3 and the close is above the 21 EMA. It will also plot a green circle below the candle when the distance is less than or equal to 3 and the close is below the 21 EMA.
It is strongly recommended to adjust the ATR values and thoroughly back test this indicator for the specific instrument and time frame you intend to trade.
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Update: Will update the script with ATR bands to increase performance.
@Tkysl, Yes, I'm using this along with my strategy. The amount of Conviction you get when you develop or tweak someone's idea is very high. So I think psychology also plays a great role. Add this to your chart and see how it goes. The shorter the time frame more signals you get.
Tkysl
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@Kavin301, how do you use this can you please explain in detail
Kavin301
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@Tkysl, If the market is going down, I wait for a green signal indicating a potential reversal. And I enter a trade only after the confirmation candle.
Conversely, in an upward market, I pay attention to red signals suggesting a possible reversal.
I typically analyse use 5-minute timeframe candles. To minimize the risk of false signals, I only execute trades after the confirmation candle in the 5-minute chart.
For commodities like crude, I find that 1-minute candles also provide accurate signals.