TASC 2026.01 The Reversion Index

█ OVERVIEW

This script implements the Reversion Index as presented by John F. Ehlers in the January 2026 edition of the TASC Traders' Tips, "Identifying Peaks And Valleys In Ranging Markets”. This indicator was created to provide timely buy and sell signals for mean reversion strategies.

█ CONCEPTS

Ehlers came up with the idea for the Reversion Index following the development of the "Continuation Index" (featured in the September 2025 edition). While the Continuation Index provides indications for trend onset, continuation, and exhaustion; the Reversion Index serves as its counterpart for mean-reversion trading.

The raw Reversion Index value is calculated as the net change in price normalized to the sum of the absolute value of change in price over the same period; for clarity, it is then smoothed using Ehlers' SuperSmoother.

The Smooth Reversion Index value is led by a "Trigger" line, which is created by smoothing the raw data to half the smoothing period of the smoothed index.

Note: Ehlers suggests the smoothing lengths be left at 8 and 4 (Reversion Index & Trigger). For this reason these lengths are hard-coded in the script but can be easily modified in the code.

█ USAGE

In order to identify peaks and valleys effectively, the "Length" should ideally be set to half of that of the expected cycle of the data. If the expected cycle of your trading data is 20 bars, a 10 bar length should be set.

Note: The Reversion Index is intended to identify peaks and valleys within a cycle, not over a large sample period. Ehlers suggests that this would create an estimation of trend, which is not the goal here.

Once the length is set, peaks and valleys are interpreted as the cross of the "Trigger" and "Smooth" lines.