Introduction

Today, I want to talk to you about a breakout indicator that can be useful when capturing new trends. This is the “Reversal & Breakout Signals” indicator.

Indicator Description

The “Reversal & Breakout Signals” indicator uses a combination of moving averages and volume analysis to predict reversal points and breakouts in the market.

The basis of the indicator includes:

1.- Hull Moving Average (HMA): A moving average that helps to reduce lag and increase sensitivity to price changes.

2.- Weighted Averages of Highs and Lows: Used to establish the upper and lower channel levels, offering a clear view of potential breakout points.

3.- Volume Conditions: Volume is analyzed to confirm the strength behind breakout movements, using a specific threshold that indicates strong volume.

Main Applications

This indicator can be very useful for traders looking to capture large market movements right at their onset. Some of the applications include:

1.- Identification of Breakouts: Clear signals when the price crosses the established channel levels, indicating a possible entry.

2.- Detection of Reversals: The indicator is capable of signaling rejections at critical price levels, suggesting entry opportunities against the current trend.

Indicator Settings

The parameters of the “Reversal & Breakout Signals” indicator can be adjusted to suit different trading styles and assets.

The main parameters include:

len (Indicator Length): Determines the number of bars used to calculate the averages and channels.

vlen (Volume Strength Period): Defines the period over which the volume average is calculated to compare with the current volume.

threshold (Strong Volume Threshold): Sets the level needed to consider that the volume is significantly high.

ProRealTime Indicator Code

The code for the indicator in ProRealTime is as follows:

//----------------------------------------------------------------------//
//PRC_Reversal&Breakout Signals
//version = 0
//11.04.24
//Iván González @ www.prorealcode.com
//Sharing ProRealTime knowledge
//----------------------------------------------------------------------//
//-----Inputs-----------------------------------------------------------//
len=20//Indicator period
vlen=20//Volume Strength period
threshold=1.5//Stong Volume Threshold
trnd=1//Colour Candles During Trends
//----------------------------------------------------------------------//
//-----Hull moving average----------------------------------------------//
hma=hullaverage[30](close)
//----------------------------------------------------------------------//
//-----Volume conditions------------------------------------------------//
rvol=volume/average[vlen](volume)
strongvol=rvol>threshold
//----------------------------------------------------------------------//
//-----Weighted moving average------------------------------------------//
sh=weightedaverage[len](high)
sl=weightedaverage[len](low)
//----------------------------------------------------------------------//
//-----Channel----------------------------------------------------------//
ch=highest[len](sh)
cl=lowest[len](sl)
//----------------------------------------------------------------------//
//-----High and Low Levels definition-----------------------------------//
if not (ch<ch[1] or ch>ch[1]) then
hstore=ch[1]
elsif not (cl<cl[1] or cl>cl[1]) then
lstore=cl[1]
endif
midline=(hstore+lstore)/2
//----------------------------------------------------------------------//
//-----Candle direction-------------------------------------------------//
if close > open then
candledir = 1
else
candledir = -1
endif
//----------------------------------------------------------------------//
//-----Breaks and Reversals Definition---------------------------------//
breakout=candledir and close>hstore and open<hstore
breakdown=candledir=-1 and close<lstore and open>lstore
//-----Bullish BreakOut
bullishbreakout= (breakout or ((breakout[1] or breakout[2] or breakout[3] or breakout[4]) and candledir = 1)) and strongvol and not (bullishbreakout[1] or bullishbreakout[2] or bullishbreakout[3])
//-----Bearish BreakOut
bearishbreakout = (breakdown or ((breakdown[1] or breakdown[2] or breakdown[3] or breakdown[4]) and candledir = -1)) and strongvol and not (bearishbreakout[1] or bearishbreakout[2] or bearishbreakout[3])
//-----Bullish Reversal
bullishrej = (low < lstore and close > lstore) and not (bullishrej[1] or bullishrej[2] or bullishrej[3] or bullishrej[4])
//-----Bearish Reversal
bearishrej = (high > hstore and close < hstore) and not (bearishrej[1] or bearishrej[2] or bearishrej[3] or bearishrej[4])
//-----Trend Status
if bullishbreakout then
state=1
elsif bearishbreakout then
state=-1
elsif (low crosses over lstore and state=-1) or (high crosses under hstore and state=1) then
state=0
endif
//------------------------------------------------------------------------//
//-----Plot Trend Tracker and color Candles-------------------------------//
if state=-1 then
TrendTracker=hma
drawpoint(barindex,TrendTracker,1)coloured("red")
if trnd then
DRAWCANDLE(open, high, low, close)coloured("red")
endif
elsif state=1 then
TrendTracker=hma
drawpoint(barindex,TrendTracker,1)coloured("green")
if trnd then
DRAWCANDLE(open, high, low, close)coloured("green")
endif
else
TrendTracker=0
endif
//------------------------------------------------------------------------//
//-----Show Bullish and Bearish Reversals---------------------------------//
if bullishrej and not (state=-1) then
drawtext("▲",barindex,low-0.25*tr)coloured("green")
elsif bearishrej and not (state=1) then
drawtext("▼",barindex,high+0.25*tr)coloured("red")
endif
//------------------------------------------------------------------------//
//-----Show Bullish and Bearish Breakouts---------------------------------//
if bullishbreakout then
drawtext("♦",barindex,low-0.25*tr)coloured("yellow")
DRAWCANDLE(open, high, low, close)coloured("yellow")
elsif bearishbreakout then
drawtext("♦",barindex,high+0.25*tr)coloured("yellow")
DRAWCANDLE(open, high, low, close)coloured("yellow")
endif
//----------------------------------------------------------------------//
return hstore as "Upper Level" coloured("red",50)style(line,2), lstore as "Lower Level" coloured("green",50)style(line,2), midline as "Midline"coloured("grey",50)

Conclusion

The “Reversal & Breakout Signals” indicator is an essential tool for those who wish to enhance their ability to detect entry and exit points with great precision. Experimenting with this indicator in different markets and conditions can provide traders with a significant competitive advantage in their operations.