Momentum Reversal Signal: Early-Stage Pump & Crash Reversal Detection

Overview

The Momentum Reversal Signal is an advanced trading signal that detects early-stage trend reversals after strong momentum movements. Unlike the standard Pump/Crash Momentum Signal that captures the momentum itself, the Reversal Signal identifies when a strong move is beginning to reverse, allowing entries at optimal reversal points.

How It Works

Signal Flow

The reversal signal operates in three distinct phases:

  1. Historical Phase (All candles except last 2)
    • Market must be in an idle state
    • Limited price movement allowed (configurable threshold)
    • Establishes baseline for detecting abnormal movements
  2. Momentum Phase (Second-to-last candle/group)
    • Detects strong pump (upward) or crash (downward) movement
    • Movement must exceed historical baseline by a multiplier (e.g., 2x)
    • Minimum movement threshold filters noise
  3. Reversal Phase (Last candle/group)
    • Detects price pulling back from momentum extreme
    • Pullback/bounce must remain within threshold
    • Ensures reversal is early-stage, not fully reversed

Signal Types

🔄 LONG_PUMP_REVERSAL_SIGNAL

When it triggers:

  • Strong upward pump detected in previous candle/group
  • Price has pulled back from the high
  • Pullback is within threshold (early reversal)

Trading interpretation:

  • Post-pump weakness appears
  • Early sign of downtrend or consolidation
  • Ideal for taking profit on longs or considering shorts

Example:


Candle 1-8:  Price stable around $100 (idle)
Candle 9:    Price pumps to $105 (5% move, 2x historical)
Candle 10:   Price pulls back to $104.50 (0.95% pullback)
→ LONG_PUMP_REVERSAL_SIGNAL triggered

🔄 SHORT_CRASH_REVERSAL_SIGNAL

When it triggers:

  • Strong downward crash detected in previous candle/group
  • Price has bounced from the low
  • Bounce is within threshold (early reversal)

Trading interpretation:

  • Post-crash strength appears
  • Early sign of recovery or bounce
  • Ideal for taking profit on shorts or considering longs

Example:


Candle 1-8:  Price stable around $100 (idle)
Candle 9:    Price crashes to $95 (5% move, 2x historical)
Candle 10:   Price bounces to $95.50 (0.53% bounce)
→ SHORT_CRASH_REVERSAL_SIGNAL triggered

Configuration Parameters

Required Settings


# PUMP & CRASH REVERSAL SIGNAL
enabled_reversal_signal: true

reversal_pump_multiplier: 2.0
reversal_crash_multiplier: 2.0

reversal_min_confidence_threshold: 50.0
reversal_minimum_movement_percent: 1.5

reversal_idle_movement_percent: 2.0
reversal_threshold_percent: 1.5

enable_reversal_candle_grouping: true
reversal_no_of_candles_to_group: 2

reversal_trade_direction: 0

Parameter Explanations

1. Pump / Crash Multiplier

Default: 2.0

Defines how much stronger the momentum candle must be compared to historical movement.

  • 1.5 → More sensitive, more signals
  • 2.0 → Balanced (recommended)
  • 3.0 → Conservative, fewer signals

2. Minimum Movement Percent

Default: 1.5%

Ensures the momentum candle represents a meaningful move and filters noise.

3. Idle Movement Percent

Default: 2.0%

Defines how quiet the market must be before a valid momentum move.

4. Reversal Threshold Percent (Most Important)

Default: 1.5%

  • Lower values → Earlier signals, higher risk
  • Higher values → Later but confirmed reversals

LONG example: Pump to $100 → pullback must stay above $98.50
SHORT example: Crash to $90 → bounce must stay below $91.35

5. Confidence Threshold

Default: 50%

  • Aggressive: 40–50%
  • Balanced: 50–60%
  • Conservative: 60–70%

6. Candle Grouping

  • Reduces noise on lower timeframes
  • Recommended for 1m–5m charts
  • Disable for 15m+ timeframes

Momentum vs Reversal Signals

Momentum Signal Reversal Signal
Enters during strong movement Enters after momentum exhausts
Trend-following Counter-trend
Ride the wave Catch the turn

Best Practices

  • Always combine with other indicators (RSI, volume, S/R)
  • Use smaller position sizes (counter-trend)
  • Backtest per symbol and timeframe
  • Always use stop-loss protection

Summary

  • ✅ Detects momentum one candle early
  • ✅ Confirms early-stage reversals
  • ✅ Best suited for ranging markets
  • ⚠ Requires careful tuning and risk management

Start with default parameters and adjust based on volatility, timeframe, and your risk tolerance.

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