Three Bar Reversal Pattern [LuxAlgo]

9 oct

The Three Bar Reversal Pattern indicator identifies and highlights three bar reversal patterns on the user price chart.

The script also provides an option for incorporating various trend indicators used to filter out detected signals, allowing them to enhance their accuracy and help obtain a more comprehensive analysis.

🔶 USAGE



The script automates the detection of three-bar reversal patterns and provides a clear, visually identifiable signal for potential trend reversals.



When a reversal chart pattern is confirmed and price action aligns with the pattern, the pattern's boundaries are extended, forming levels, with the upper boundary often acting as a resistance and the lower boundary as a support.



The script allows users to filter patterns based on a specific trend direction detected by multiple trend indicators. Users can choose to view patterns that are either aligned with the detected trend or opposite to it.



Included trend indicators are: Moving Average Cloud, Supertrend, and Donchian Channels.



🔶 DETAILS

The three-bar reversal pattern is a technical analysis pattern that signals a potential reversal in the prevailing trend. The pattern consists of three consecutive bar formations:

• First Bar and Second Bar: 2 consecutive of the same sentiment, representing the prevailing trend in the market.
  
• Third Bar: Confirms the reversal by closing beyond the high or low of the first bar, signaling a potential change in market sentiment.
  

Various types of three-bar reversal patterns are documented. The script supports two main types:

• Normal Pattern: Detects three-bar reversal patterns without requiring the third bar closing price to surpass the high (bullish pattern) or low (bearish pattern) of the first bar. It identifies basic formations signaling potential trend reversals.
  
• Enhanced Pattern: Specifically identifies three-bar reversal patterns where the third bar closing price surpasses the high (bullish pattern) or low (bearish pattern) of the first bar. This type provides a more selective signal for stronger trend reversals.
  

🔶 SETTINGS

• Pattern Type: Users can choose the type of 3-bar reversal patterns to detect: Normal, Enhanced, or All. "Normal" detects patterns that do not necessarily surpass the high/low of the first bar. "Enhanced" detects patterns where the third bar surpasses the high/low of the first bar. "All" detects both Normal and Enhanced patterns.
  
• Derived Support and Resistance: Toggles the visibility of the support and resistance levels/zones.
  

🔹 Trend Filtering

• Filtering: Allows users to filter patterns based on the trend indicators: Moving Average Cloud, Supertrend, and Donchian Channels. The "Aligned" option only detects patterns that align with the trend and conversely, the "Opposite" option detects patterns that go against the trend.
  

🔹 Trend Indicator Settings

• Moving Average Cloud: Allows traders to choose the type of moving averages (SMA, EMA, HMA, etc.) and set the lengths for fast and slow-moving averages.
  
• Supertrend: Options to set the ATR length and factor for Supertrend.
  
• Donchian Channels: Option to set the length for the channel calculation.
  

🔶 RELATED SCRIPTS

• Reversal-Candlestick-Structure.
  
• Reversal-Signals.