Ethereum / TetherUSEducation
Making a stable price channel with the Faster Bands indicator
Updated
Faster bands is our boosted version of the famous Bollinger Bands indicator. It uses exponential smoothing and has additional features.
https://www.tradingview.com/script/VRl7etMD-Faster-Bands-AstrideUnicorn/
PROBLEM
Bollinger Bands can be used for several purposes, including trend-following, breakouts trading, trading mean-reversion, and more. One common approach is to identify overbought or oversold markets. When the asset price falls below the lower Bollinger Band, it suggests that prices have fallen too far and are ready to rebound. In contrast, the market is likely overbought and poised for a fall if the price breaks above the upper band. If a price deviates sufficiently from its mean, the Mean-Reversion concept asserts that it will eventually revert to the mean price.
But during a strong trend, the trader runs the danger of entering trades against the current trend since the indicator flashes oversold/overbought signals too quickly.
SOLUTION
To deal with the above-mentioned problem, the trader can look at the price's overall trend and then only pick trade signals that are in line with it. In this tutorial, we will consider one more way to deal with this problem.
The reasons for the Bollinger Bands' poor performance in a strong trend are that the width of the price channel varies widely, and the middle-line can rise and fall sharply. These effects make the oversold- and overbought-levels shift radically with each new candle formed.
We will be using two specific features of the Faster Bands indicator to make the price channel more stable and ultimately get better trading signals in a stronger trend. The features are:
To make the upper- and lower-line stabler, we should calculate them on a higher timeframe and use intense smoothing.
The example below shows 1-hour ETHUSDT chart with the Faster Bands indicator applied. The Indicator Timeframe parameter is set to 2h. The Uniformity parameter is set to 7, which corresponds to the maximal level of smoothing.
Despite the strong price movements, the upper and lower band crossover signals provide good entry points.
https://www.tradingview.com/script/VRl7etMD-Faster-Bands-AstrideUnicorn/
PROBLEM
Bollinger Bands can be used for several purposes, including trend-following, breakouts trading, trading mean-reversion, and more. One common approach is to identify overbought or oversold markets. When the asset price falls below the lower Bollinger Band, it suggests that prices have fallen too far and are ready to rebound. In contrast, the market is likely overbought and poised for a fall if the price breaks above the upper band. If a price deviates sufficiently from its mean, the Mean-Reversion concept asserts that it will eventually revert to the mean price.
But during a strong trend, the trader runs the danger of entering trades against the current trend since the indicator flashes oversold/overbought signals too quickly.
SOLUTION
To deal with the above-mentioned problem, the trader can look at the price's overall trend and then only pick trade signals that are in line with it. In this tutorial, we will consider one more way to deal with this problem.
The reasons for the Bollinger Bands' poor performance in a strong trend are that the width of the price channel varies widely, and the middle-line can rise and fall sharply. These effects make the oversold- and overbought-levels shift radically with each new candle formed.
We will be using two specific features of the Faster Bands indicator to make the price channel more stable and ultimately get better trading signals in a stronger trend. The features are:
- Calculating indicator on a different timeframe than the one of the chart
- Smoothing upper- and lower-line by increasing the Uniformity parameter
To make the upper- and lower-line stabler, we should calculate them on a higher timeframe and use intense smoothing.
The example below shows 1-hour ETHUSDT chart with the Faster Bands indicator applied. The Indicator Timeframe parameter is set to 2h. The Uniformity parameter is set to 7, which corresponds to the maximal level of smoothing.
Despite the strong price movements, the upper and lower band crossover signals provide good entry points.
Trade closed: target reached
And here is the outcome for the latest out-of-sample signalNote
Our premium trading indicators: unicorn.trading
Join our Discord community: dsc.gg/unicom
Join our Discord community: dsc.gg/unicom
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.