How To Identify Market Reversals Using the MAD IndicatorOverview
The Market Anomaly Detector (MAD) Indicator is designed to capture market reversals, trend shifts, and volatility cycles using a combination of its Mainline (blue), Upper Band (green), and Lower Band (red) . This idea explores how the indicator performed in real market conditions, highlighting how price interactions with these bands provided trading signals.
How It Works
• Mainline (Blue Line - Dynamic Market Structure Guide)
• This acts as a key trend reference. When price trades above the Mainline , the structure is bullish ; when below, it’s bearish .
• Acts as floating resistance in downtrends and support in uptrends.
• Upper Band (Green Line - Dynamic Resistance Zone )
• Expands and contracts based on volatility.
• Acts as a dynamic resistance—when price struggles at this level, it often signals an overextended move.
• Breakout Above Green Band → Possible bullish expansion, highlighted by Green Background.
• Rejection at Green Band → Signals potential price exhaustion and reversal.
• Lower Band (Red Line - Dynamic Support Zone)
• Functions as a strong support—if price holds, a reversal is likely.
• Break Below Red Band → Sell confirmation, as bearish momentum increases highlighted by Red Background.
Performance in This Case Study (Based on this chart)
1. Reversal Accuracy & Trend Reactions
• Multiple green buy signals were generated as the price bounced from the red lower band, confirming it as a strong support zone.
• When price broke below the red band, sell signals followed, aligning with the continuation of a bearish move.
• Sell signals near the green upper band played out well, confirming resistance rejection.
2. Trend Shrinking & Expansion Dynamics
• The bands contracted during sideways market phases, signaling low volatility and a lack of momentum.
• Expansion occurred before sharp price moves, giving early volatility warnings.
3. Resistance & Support Behavior
• The Blue Mainline rejected price during a downtrend, acting as dynamic resistance.
• Price failed to hold above the Green Upper Band, confirming trend weakness.
4. Strong Market Moves & Confirmation
• The break below the red band led to a clear downward trend, reinforcing the sell signal’s validity.
• The indicator effectively filtered false breakouts by ensuring a clean move beyond its bands before confirming signals.
Key Takeaways
✅ Lower Band (Red Line) = Strong Support → If price holds, reversals occur; if broken, sell-offs follow.
✅ Upper Band (Green Line) = Strong Resistance → Price rejection confirms weakness; breakout signals potential expansion.
✅ Mainline (Blue Line) = Dynamic Trend Guide → Price below = bearish, price above = bullish.
✅ Band Contraction = Low Volatility, Band Expansion = Impending Breakout.
✅ MAD Indicator accurately detected reversals and trend shifts in this case study.
