Katz Candle Momentum Reversal Indicator v4.1

Katz Candle Momentum Reversal Indicator (CMRI) v4.1
Overview
The Katz CMRI is a comprehensive trading indicator designed to identify trend direction, momentum shifts, and potential market reversals. It combines several different concepts into a single, cohesive visual tool.

At its core, the indicator uses a custom Line Break chart calculation to filter out market noise and a Heikin-Ashi-style formula to smooth price action. This combination helps to more clearly define the underlying trend. The main output is a dynamic, multi-colored trend line accompanied by various signals that appear directly on your chart. It's designed to help traders stay with the trend while also spotting key moments of expansion, contraction, and potential reversal.

How to Interpret the Indicator
The indicator has several key visual components:

Main Trend Line: This is the thick, central line that changes color.

Green: Indicates a bullish (upward) trend.

Red: Indicates a bearish (downward) trend.

Faded/Light Colors: Suggest a potential loss of momentum or a pullback within the trend.

White: Signals a significant break in the trend structure.

Trend Cloud: The shaded area between the main trend line and the white midline (mid). A green cloud shows the trend is above the midpoint, while a red cloud shows it's below.

Upper/Lower Bands: The aqua (Trend Up) and yellow (Trend Down) lines represent the recent highs and lows of the established trend. When price is pushing against these bands, it signals trend strength.

Background Colors:

Gray: A "Contraction Zone." This indicates that the trend is losing momentum and consolidating, warning of potential chop or a reversal.

Blue: An "Expansion Event." This highlights a sudden increase in momentum in the direction of the trend.

Signal Shapes:

Diamonds: These are the primary entry signals. A green diamond below a candle signals a potential long entry, while a red diamond above a candle signals a potential short entry.

⬆️⬇️ Arrows: These are secondary momentum signals. They can be used as confirmation that the trend is continuing.

Trading Strategy & Rules
This strategy uses the primary diamond signals for entries and trend changes for exits.

Long Trade (Buy) Rules
Entry: Wait for a green diamond to appear below the price candles. For confirmation, the main trend line should turn solid green, and the price should ideally be above the white midline.

Exit:

Stop Loss: Place a stop loss below the recent swing low or below the candle where the green diamond appeared.

Take Profit: Consider exiting the trade when a red diamond appears above the candles, signaling a potential trend reversal. Alternatively, a trader might exit if the background turns gray (Contraction Zone), indicating the bullish momentum has faded.

Short Trade (Sell) Rules
Entry: Wait for a red diamond to appear above the price candles. For confirmation, the main trend line should turn solid red, and the price should ideally be below the white midline.

Exit:

Stop Loss: Place a stop loss above the recent swing high or above the candle where the red diamond appeared.

Take Profit: Consider exiting the trade when a green diamond appears below the candles. A gray "Contraction Zone" can also serve as an early warning to exit as bearish momentum wanes.

Indicator Filters Explained
The indicator includes a "Trend Filter Type" setting that allows you to adjust its sensitivity. This can help reduce false signals in choppy markets.

Raw: This is the most sensitive setting. It will generate a trend change signal as soon as the basic conditions are met. Use this for scalping or in strongly trending markets, but be aware that it may produce more false signals.

OutStep: This is the default, balanced setting. It adds an extra layer of confirmation by requiring the main trend line itself to be moving in the direction of the new trend. For example, a new green signal will only be confirmed if the trend line's value is higher than its previous value. This helps filter out weak signals.

FullStep: This is the most conservative and filtered setting. It includes the "OutStep" logic and adds further conditions related to the upper and lower trend bands. This setting will produce the fewest signals, but they are generally the highest quality, making it suitable for swing trading or avoiding choppy market conditions.

Disclaimer
This indicator is a tool for technical analysis and should not be considered financial advice. All trading involves substantial risk, including the possible loss of principal. Past performance is not indicative of future results. The signals generated by this indicator are for educational and informational purposes only. You are solely responsible for any trading decisions you make. Use this indicator at your own risk.