Trend Reversal

Naturally, the bottom of a bearish trend and peak of a bullish trend is when the trend reverses. To detect trend reversal, I used a modified version of RSI.

RSI: The Relative Strength Index is a scale of 0-100 and used to detect overbough and oversold conditions. Typically, the center line going below 30 (lower band) is said to be oversold and above 70 (upper band) as overbought.

Thus, anytime the center line goes below the lower band and then crosses over, a trend reversal from bearish to bullish is detected. Similarly, anytime the center line goes above the upper band and then crosses under, a trend reversal from bullish to bearish is detected.

In the modified version, the upper and lower bands do not remain fixed at 30/70 or some other values, but dynamically shift depending on market conditions and volatility. This gives a more accurate estimate of trend reversal.

Thus, whenever a trend reversal is detected within a bearish/bullish trend, a buy/sell signal is generated.

The above is an oversimplification of the actual algorithm but it is the gist of it.