The Volatility Band strategy generates trading signals determined by volatility-based boundaries. Like in several other volatility band indicators, these boundaries are placed a number of deviations above and below a mean price value; for Volatility Band, this value is equal by default to simple moving average (SMA) of exponentially smoothed typical price (hlc3). Deviations are based on the difference between typical and Low price of adjacent bars, taking into account whether the typical price is greater or less than its previous value (for more detailed information on mathematics involved, refer to Sylvain Vervoort's article "Within the Volatility Band" published in August 2013 issue of "Technical Analysis of Stocks & Commodities").

According to S. Vervoort's observations, prices tend to reach the upper band more often than the lower one; this issue is addressed by using an adjustment factor for the lower band, i.e., the multiplier that makes lower band's shift from the middle line not equal to that of the upper band.

Buy signal is generated when Close price gets higher than the upper band; Sell signal when it falls below the lower band.

Input Parameters

Parameter Description
price The price with which the middle line is calculated.
average length The number of bars used to calculate the SMA.
volatility length The number of bars used to calculate the third ADX for TAC_ADX.
deviation factor The number of deviations determining the distance between the middle line and the upper band.
low band adjust Adjustment factor for the lower band


Plot Description
MidLine The middle line, SMA of exponentially smoothed price data.
UpperBand The upper band.
LowerBand The lower band.

Further Reading

1. "Within the Volatility Band" by Sylvain Vervoort. Technical Analysis of Stocks & Commodities, August 2013.

You may also like
The Pair Trading Long strategy is part of Domenico D'Errico's pair trading system. By design, ...
The MomentumLE strategy generates a Long Entry signal when Momentum is rising. This strategy ...