The Bands & Momentum

Posted on March 8th, 2010 by navstock

The Bands

They do  not predict the future. They measure what is happening now.

The bands have been designed around the calculation of a mid line. This line help us define when price is moving up or down. If we are making new highs above the mid then we are going up. If we are making new lows below the mid then we are going down. A cross of the mid does not mean a change in direction but it is a warning sign that something might happen. The channels give us an indication in the strength of movement. If we get a cross of the mid and the price stay within the mid bands then we can expect that the trend strength is not vary strong. Charts that move into the outer bands are quite strong and are very good to hold in a trade. When charts move outside the bands this is extreme in terms of movement. If we are not making new highs or lows out in this area then invariable the price will pull back to the mid.

The most useful aspect of the bands is that they auto scale to time frame and volatility. This means it does not really matter what time frame you use, the way you look at the chart will remain the same. Time frames of less than 2 min can be sporadic and quite hard to figure what is going on so the recommendation is time frames greater than 2 min to whatever you want. Another very useful aspect is that the bands can be applied to a wide range of financial instruments. This like currencies, commodities, stocks can all be traded the same way using the same system and rules. The is no need for optimizing signals or running a multitude of other indicators. All you need to do is look at the chart relative to the bands to work out what is happening.

 

Momentum

While developing the bands a new way t looking at momentum was also developed. Momentum is very useful in knowing where to look for the start of trends. It does not matter which way a trend is going, eventually they all turn. When the momentum is either on 100 or 0 then this is the area where we are looking for a change of direction. If you take a trade based on the bands and the momentum starts turning with the price going in the same direction then this is a good sign that you have found a turning point and the expectations of the trade going your way rises considerably. Looking on the chart above give a good example of the relationship between chart turning, the function of the bands and the use of momentum.

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