Theory of Reversal

Don’t mind me, I need to jot things down to draw some conclusions and overcome anticipation bias somehow.

What truns price?

MFI Divergence, MFI Coninuation Divergence, MFI Taper* *, Big Bow Divergence and Sudden Volatlity Rise Reversal

  • in the direction away from and outside the E9D
    ** outside excessive volatility – price hasn’t just recently popped the Ionosphere

MFI Divergences requrie the presence of a White Line: MFI oversold / overbought Or a crossing over the Stratosphere line.
There are two kinds, the Real and the Early Divergences.

The Red, Real Divergence may have a span of 36-54 pips between the start and the end of the divergence.

Another form of a Real Divergence would have a bow in excess of 2/3 of the way between the OS and OB lines.

(Less than 4 pips drop from the swing low, but look at the depth – 66+ read on the bow up!)

The Magenta, Early Divergence may a span of 20-36 pips between the start and the end of the divergence.
An Early Divergence can be rounded up to a Real divergence upon a re-visit and add on extra leg.

(20 pips between the Magenta legs)

Respect the reversal divergences as they may have a lasting effect.

An MFI Continuation divergence requires the presence of an MFI Divergence prior for the shoulder reference level to beat.

A succesful MFI Taper (purple) is as powerful and overriding as a Real Divergence. It requires price falling short from the E9D.

A Sudden Volatlity Rise Reversal would have a temporary effect unless accompanied by an MFI divergence.
Consider the halfway mark faliure between the Stratosphere and Ionosphere to be a rather potent Volatility Rise Reversal Signal.

This Purple taper was doomed after price popped the Ionosphere line (Red w/ Yellow in it) on the downside. Franly, I should not even have a mark up for this one. Volatility reversal arrows plus Magenta divergence below.

There should be a leg up from where the MFI drops below / exceeds the Magenta Divergences shoulder marked up by the interrupted line in the indicator window.


30-minute chart.

MFI 14-sample HL2

Stratosphere: + or – 45 pips from the E-64 HL2

Ionosphere: + or – 87 pips from the E-64 HL2

E9D: E-414 HL2 High & Low


   if (High[i]>stratou[i] && Close[i]<High[i]-(High[i]-Low[i])*.8 && High[i]-Low[i]>100*Point){
          ObjectCreate("Poe"+DoubleToStr(i), OBJ_TEXT, 0, Time[i], (High[i]+Low[i])/2+150*Point); 
            ObjectSetText("Poe"+DoubleToStr(i), CharToStr(222), 32, "WingDings", Crimson);
       if (Low[i]<stratod[i]+50*Point && Close[i]>Low[i]+(High[i]-Low[i])*.8 && High[i]-Low[i+1]>90*Point && iStochastic(symbol,0,120,3,3,MODE_SMA,PRICE_MEDIAN,0,i)<15.5 && iStochastic(symbol,0,120,3,3,MODE_SMA,PRICE_MEDIAN,0,i)>4 && Low[i]>stratod2[i]){
          ObjectCreate("Poe"+DoubleToStr(i), OBJ_TEXT, 0, Time[i], (High[i]+Low[i])/2-60*Point); 
            ObjectSetText("Poe"+DoubleToStr(i), CharToStr(221), 32, "WingDings", DarkGreen);