Price Momentum Reversal

Learning Objectives:

Time: 75-90 minutes | Prerequisites: Momentum, Statistical Thinking | Difficulty: Intermediate

Best Markets: Forex, Crypto, Stocks, Commodities | Best For: Reversal trading at extremes

Price Momentum Reversal is our proprietary indicator designed to identify potential market turning points with high precision. It combines advanced momentum analysis and price action patterns to detect extreme market conditions that are statistically likely to reverse.

Why catching reversals is hard:

Traditional approach:

Problems:

Our approach:

Result: Instead of "RSI is oversold, maybe buy," you get "Extreme statistical oversold condition with volume confirmation and HTF alignment high-probability reversal setup."

[CHART EXAMPLE: Traditional RSI signals vs Price Momentum Reversal signals showing reduced false positives]

Traditional Overbought/Oversold:

TradeDots OBOS Index:

Component 1: Statistical Extreme Detection

We measure how far current momentum deviates from its normal range using standard deviations.

Concept:

Why it works: In normal distribution, 95% of values fall within 2 standard deviations. When momentum exceeds this, it's statistically extreme mean reversion likely.

[DIAGRAM: Normal distribution curve showing OBOS zones beyond 2 standard deviations]

Component 2: Rate of Change Analysis

Speed of movement matters. A slow grind to extremes is different from a panic spike.

We measure:

Why it matters:

Component 3: Volume Weighting

Price can reach extremes on low volume (weak, unreliable) or high volume (strong, meaningful).

We incorporate:

Why it matters: High-volume extremes backed by institutions are more likely to reverse than low-volume retail panic.

Component 4: Volatility Adjustment

In high-volatility markets, "extreme" is different than in low-volatility markets.

We adjust:

Why it matters: Prevents false signals in choppy markets while capturing extremes in trending markets.

The OBOS Index uses a proprietary algorithm that combines momentum, volume, and volatility analysis to identify overbought and oversold conditions.

How to read it:

Note: Negative values = oversold, positive values = overbought. Higher magnitude = stronger trend. Values beyond ±80 are very rare and indicate extreme conditions.

Key difference from RSI: Adapts to each stock's specific behavior and current market regime.

[CHART EXAMPLE: OBOS Index vs RSI showing dynamic adaptation]

What it means: Standard reversal signal indicating oversold conditions with high probability of bounce.

When it appears:

Visual: Green up arrow (�) appears on chart

Probability: ~60-65% win rate in all conditions, 70-75% with confirmation

Best use: Primary reversal signal for bullish entries

[CHART EXAMPLE: Bullish Reversal signal at oversold level followed by bounce]

What it means: Standard reversal signal indicating overbought conditions with high probability of pullback.

When it appears:

Visual: Red down arrow (�) appears on chart

Probability: ~60-65% win rate in all conditions, 70-75% with confirmation

Best use: Primary reversal signal for exits or short entries

[CHART EXAMPLE: Bearish Reversal signal at overbought level followed by decline]

What it means: Higher timeframe bullish reversal confirmation. Not only is current timeframe oversold, but higher timeframe also confirming reversal conditions.

When it appears:

Visual: Double green up arrows (��) or special label

Probability: ~75-80% win rate highest conviction bullish signal

Best use: Best long entries multiple timeframes aligned

Trading implication: Larger position size justified, bigger targets reasonable

[CHART EXAMPLE: HTF Bullish signal showing alignment across timeframes]

What it means: Higher timeframe bearish reversal confirmation. Multiple timeframes showing overbought conditions.

When it appears:

Visual: Double red down arrows (��) or special label

Probability: ~75-80% win rate highest conviction bearish signal

Best use: Best short entries or long exits multiple timeframes aligned

Trading implication: High-confidence exit point for longs, excellent short entry

[CHART EXAMPLE: HTF Bearish signal showing multi-timeframe exhaustion]

Placement: Arrows appear directly on price candles at reversal points

Bullish signals (�, ��): Below candle at oversold levels Bearish signals (�, ��): Above candle at overbought levels

Color coding:

Why on chart vs separate pane: Immediate visual connection to price action, easier to see entries/exits in context.

Some versions include separate pane showing:

Use: See exact OBOS level, not just signals. Useful for anticipating signals before they appear.

[DIAGRAM: OBOS pane showing zones and current reading]

Background colors:

Purpose: Quick visual context see at a glance if market is in extreme zone even without signals yet.

Visual alerts when signal appears:

Setup: Configure in indicator settings or TradingView alert system.

Verify: Open chart � Indicators � Favorites � "Price Momentum Reversal" should appear

Recommended first chart: Any trending stock or crypto, 1-hour or 4-hour timeframe

What you'll see: Arrows appear directly on price candles at reversal points.

[SCREENSHOT: Price Momentum Reversal applied to chart]

To access settings:

Key settings to adjust:

Sensitivity (High, Medium, Low):

Recommendation: Start with Medium, adjust based on experience.

Volume Weighting (On/Off):

Recommendation: Keep On for stocks. Can turn Off for 24/7 crypto markets where volume patterns differ.

Visual Preferences:

Alert Settings:

Bullish setup:

Example:

[CHART EXAMPLE: Step-by-step bullish reversal trade]

Bearish setup:

Setup:

Example:

Win rate: 75-80% for HTF signals vs 65% for standard signals

[CHART EXAMPLE: HTF signal with larger move]

Highest probability setup:

Example (Long):

[CHART EXAMPLE: Reversal signal at structural support]

Simple rule: Exit when opposite signal appears.

Long position:

Pros: Lets winners run, captures full reversal move Cons: May give back some profit waiting for signal

[CHART EXAMPLE: Entry to exit using opposing signals]

Rule: Set target based on risk/reward (typically 2:1 or 3:1).

Long position:

Exit: When price hits $110 regardless of signals

Pros: Consistent R:R, locks in profits Cons: May exit early if reversal continues

Rule: Move stop loss as trade moves in your favor.

Example:

Pros: Protects profits, lets winners run Cons: Can be stopped out on normal volatility

Market condition: Established trend reaching extremes

Setup:

Probability: ~70-75% win rate

Example: After 20% rally, Bearish Reversal appears with decreasing volume � High probability pullback

[CHART EXAMPLE: Trend exhaustion reversal]

Market condition: Sideways range-bound market

Setup:

Probability: ~75-80% win rate (mean reversion in ranges is reliable)

Example: Range between $45-$55, Bullish Reversal at $46 � Buy for move to $54

[CHART EXAMPLE: Range reversal at support]

Market condition: Strong trend with healthy pullbacks

Setup:

Probability: ~65-70% win rate

Example: Uptrend pullback to 50 EMA, Bullish Reversal � Enter for continuation

[CHART EXAMPLE: Pullback reversal in uptrend]

Market condition: Erratic, no clear direction, high volatility

Problem: Signals appear frequently but don't lead to sustained moves

Solution: Recognize choppy conditions (narrow ranges, frequent reversals) and skip trading or reduce size dramatically

How to recognize chop:

[CHART EXAMPLE: Choppy market with low-quality signals]

Settings:

Strategy:

Target: 1.5:1 to 2:1 R:R, multiple trades per day

Settings:

Strategy:

Target: 2:1 to 3:1 R:R, 2-5 trades per week

Settings:

Strategy:

Target: 3:1 to 5:1 R:R, 1-2 trades per month

Why it works: Both measure momentum extremes, different calculations provide confirmation

Setup:

Result: Double momentum confirmation = 75-80% win rate

[CHART EXAMPLE: PMR + Smart MACD combination]

Why it works: Reversal signals at structural levels have highest probability

Setup:

Result: Structural and momentum confirmation = 75-80% win rate

[CHART EXAMPLE: PMR signal at ChoCh support]

Why it works: Volume confirms if reversal has institutional backing

Setup:

Rule: If signal appears with below-average volume, skip or reduce size.

Error: Taking every arrow that appears Problem: Not all signals are equal context matters Fix: Check: Is price at support/resistance? Is there a trend? Volume confirming?

Rule: Signals at structural levels > signals in middle of nowhere.

Error: Treating all signals the same Problem: Missing the highest probability setups (HTF signals) Fix: When HTF signal (�� or ��) appears, pay extra attention. Consider larger position.

Stat: HTF signals have 10-15% higher win rate than standard signals.

Error: Shorting strong uptrends just because Bearish Reversal appears Problem: Trend may continue despite overbought conditions Fix: Check higher timeframe. If daily chart in strong uptrend, be cautious shorting 1H bearish signal.

Rule: Only fade trends when multiple timeframes showing exhaustion (HTF signals).

Error: "I'll just wait for opposite signal to exit" Problem: Opposite signal may not appear for a long time, or may gap against you Fix: Always use stop loss below swing low (long) or above swing high (short).

Reality: Even 70% win rate means 30% of trades lose. Protect capital on those.

Error: Day trader using daily chart signals, or position trader using 5-min signals Problem: Timeframe mismatch with strategy = poor results Fix: Match timeframe to holding period:

[CHART EXAMPLE: Full trade walkthrough]

Asset: EUR/USD (Forex, 4-Hour Chart)

Setup:

Entry: 1.0860 (next candle open after signal) Stop: 1.0810 (50 pips below support) Target: 1.0960 (previous resistance, 100 pips)

Result: Reached 1.0975 over 5 days Profit: 115 pips, 2.3:1 risk/reward Why it worked: HTF confirmation + structural support + volume exhaustion

[CHART EXAMPLE: Mean reversion in range]

Asset: AAPL (Stock, Daily Chart)

Setup:

Entry: $168 (next day open) Stop: $164 (below range support) Target: $178 (near range resistance)

Result: Reached $177 in 8 trading days Profit: $9/share, 2.25:1 risk/reward Why it worked: Mean reversion in established range + momentum reversal at support

[CHART EXAMPLE: Signal that didn't work]

Asset: NVDA (Stock, 1-Hour Chart)

Setup:

Entry: Short at $878 Stop: $885

Problem: Didn't check daily chart

Result: Price consolidated for 3 hours, then continued to $895 Loss: -$7/share (hit stop)

Lesson: Always check higher timeframe. Don't fade 1H signals when daily trend is strong.

Wait for signals at structural levels support/resistance, trendlines Use HTF signals for highest conviction multi-timeframe alignment Confirm with volume ensure institutional participation Check higher timeframe don't fight major trend Use proper stops below structure, not arbitrary Focus on quality over quantity trade best setups, not every signal Combine with other indicators Smart MACD, Chart Pattern for confirmation

L Don't trade every signal context is critical L Don't ignore HTF signals they're your best setups L Don't fade strong trends without HTF confirmation lower timeframe signals can be wrong L Don't skip stop loss always protect capital L Don't overtrade wait for high-quality setups L Don't use wrong timeframe match to your trading style L Don't trade in choppy markets recognize and avoid

Task: Add Price Momentum Reversal to 10 different assets (stocks, forex, crypto).

Identify:

Check: Did reversals follow? How long did they take? Win rate?

Task: Find 20 signals (any type).

For each, evaluate:

Calculate: Win rate of signals with context vs without context.

Task: Track only HTF signals (�� and ��) for 1 month on 5 different assets.

Record:

Compare: HTF win rate vs standard signal win rate (from Exercise 1).

Task: Same chart, test all three sensitivity settings (High, Medium, Low).

Compare:

Determine: Which sensitivity fits your trading style?

Task: Use Price Momentum Reversal + Smart MACD together.

Find: 10 setups where both indicators aligned (both showing reversal).

Track: Win rate of combined signals vs single indicator signals.

Proprietary OBOS Index adapts to each asset and market regime (not fixed levels) Four signal types provide different confidence levels (HTF signals are best) Context matters signals at structural levels have highest probability Volume confirmation essential for institutional backing Multi-timeframe analysis prevents trading against major trends Best for reversal trading at statistical extremes (trend exhaustion, range boundaries) Works across all markets forex, crypto, stocks, commodities Combine with other indicators for multiple confirmations HTF signals = 75-80% win rate vs 65% for standard signals

Continue to: Trend Following Buy Sell Signals to learn trend continuation strategies (opposite of reversals).

Or explore: Combining Indicators to see complete systems using Price Momentum Reversal with other tools.

Practice: Spend 5-10 hours identifying reversal signals on historical charts. Focus on HTF signals and structural contexts.

Remember: Price Momentum Reversal is designed for one thing: identifying turning points at statistical extremes. It won't catch every reversal, but when it signals especially HTF signals at structural levels the probability is in your favor. Use proper risk management, combine with confirmations, and focus on quality setups over quantity.