Tick Range Engulfing Candle Highlighter with Trend Change

Aug 30

Overview
The "Tick Range Engulfing Candle Highlighter with Trend Change" indicator is designed to identify potential trend reversals by analyzing the size of each candle relative to a customizable tick size. This indicator highlights key moments when the market may shift direction based on an "engulfing" candle pattern, where the current candle's price range is larger than the previous one. By identifying these moments, traders can gain insight into possible trend changes, which could be useful for various trading strategies, including trend-following or reversal-based trading.

Key Concepts

Tick Size:

• The indicator uses a user-defined tick size to calculate the price range of each candle. The tick size represents the minimum price movement that the market recognizes, allowing for more precise control over the range calculations.
  

Engulfing Candle Pattern:

• The concept of an "engulfing candle" refers to a scenario where the current candle’s range (high minus low) is larger than the previous candle’s range. This pattern can signal a potential trend reversal, especially when combined with a change in the candle's direction (bullish to bearish or bearish to bullish).
  

Trend Change Detection:

• The indicator specifically looks for situations where a bullish candle is followed by a larger bearish candle (indicating a potential downward trend reversal) or where a bearish candle is followed by a larger bullish candle (indicating a potential upward trend reversal).
  

• The trend change is validated by comparing the tick range of the current and previous candles, ensuring that the current range is larger, which adds significance to the reversal signal.
  
  How the Indicator WorksInput and Calculation:
  • Users start by setting the tick size through the indicator’s input. The script then calculates the tick range for the current and previous candles by dividing the difference between the high and low prices by the specified tick size.
    
  Candle Direction Analysis:
  • The indicator assesses whether each candle is bullish (closing price higher than the opening price) or bearish (closing price lower than the opening price).
    
  Engulfing and Trend Reversal Detection:
  • The script checks for an engulfing pattern combined with a change in the candle's direction:
    
  • Bullish to Bearish Change: Detected when a bullish candle is followed by a larger bearish candle.
    
  • Bearish to Bullish Change: Detected when a bearish candle is followed by a larger bullish candle.
    
  Visual Cues:
  • When the conditions for a trend change are met, the indicator plots visual signals on the chart:
    
  • A red downward arrow below the candle indicates a potential bearish reversal.
    
  • A green upward arrow above the candle indicates a potential bullish reversal.
    
  How to Use This Indicator
  • Customization:
    
  • Adjust the tick size to match the asset’s characteristics or your trading preferences. A smaller tick size will result in more sensitive detection, while a larger tick size will smooth out minor fluctuations.
    
  Trade Confirmation:
  • This indicator can be used as a confirmation tool for other trend-following or reversal strategies. It’s particularly useful for traders looking to identify early signs of trend reversals.
    
  Strategy Integration:
  • Consider integrating this indicator with other technical analysis tools such as moving averages, RSI, or support/resistance levels to build a more comprehensive trading strategy.
    
  Underlying Concepts
  • The core idea behind this indicator is the principle of engulfing patterns combined with tick size analysis. By focusing on candles that not only change direction but also show a significant increase in range, the indicator highlights moments when the market may be experiencing a substantial shift in momentum. This method can help traders filter out noise and focus on more meaningful potential reversals.
    
  
  
  In summary, the "Tick Range Engulfing Candle Highlighter with Trend Change" indicator provides traders with a tool to spot potential trend changes based on price action and candle analysis. It's flexible, allowing for customization, and can be a valuable addition to various trading strategies.