Volume Adaptive Bands

2019年5月23日

Introduction

I have been asked by coppermine and verbena to make bands that use volume to provide adaptive results. My first approach was to use exponential averaging, in order to do so i needed to quantify volume movement using rescaling with the objective to make the bands go away from each others when there is low volume, this approach is efficient and can work on any time frame, however i decided at the end to use another method which rely on recursive weighting, cleaner but more parametric. Those bands aim to highlight great breakouts point to go with the trend.

The Indicator

length control the period of the moving averages used in the script, however low length's don't necessarily provide indications for shorter terms breakouts as shown here :



As i said the bands are close to each others when there is high volume and away when there is low volumes.



Low volume period, bands will avoid to cross price



High volume, bands will be close to generate signals.

Correction Factor

Higher time frames will lower the distance between each band, this is because volume is higher during higher time frames, remember that the indicator bands are close to each others when volume is high.



1h chart eurusd.

This is why i added a correction factor, this factor can help you control the distance between each bands, when the correction factor is greater than 1 the bands will be closer to each others, this is useful for low time frames where the average volume is lower. When the time frame is high, use values between 0 and 1 to increase distance between each bands.



Correction factor = 0.2

Conclusion

I presented a new adaptive band indicator that adapt to trading volume by using recursive weighting, volume can be replaced by other indicators but you can have results going nuts, at the end its about experimentation. I hope you will find an use to it, thanks to coppermine and verbena for the request :)

Thanks for reading !