Some of you wanted to know what kind of indicators I used.
They are just bollinger-bands with a few extra deviations. They allow me to guesstimate implied volatility (theoretical volatility). The standard deviations represent a measure of volatility. But I don’t use them like that. I use standard deviations to see how far price can extend before a pullback to the dynamic mean- depicted as a white moving line. The dynamic mean is the 20-period-moving Average. I use the standard 20-period settings.
Standard deviation 3 of the outer bands should encapsulate the price 97% of the time. There is a 3% chance price will keep rallying this is called band-walking according to a Japanese FX trader called Japanese Forex Trader Kei on youtube.
The standard-deviations allows me see the range incase price is over-extended. This is usefull information because it allows me set a range for laddering in orders. I start laddering when price touches standard deviation 1 and when a few conditions are met.
How do I know price won’t blast through standard deviation 3-4 and continue upwards? The answer is multiple timeframe analysis. Read about shorting outer-deviations
How to use it? Copy the code below and paste it in pine-editor then add to chart.
study(shorttitle="BB_3deviations", title="IF_bollinger", overlay=true) source = close length = input(20, minval=1), mult = input(2.0, minval=0.001, maxval=50) mult1 = input(3.0, minval=0.001, maxval=50) mult2 = input(4.0, minval=0.001, maxval=50) basis = sma(source, length) dev = mult * stdev(source, length) dev1 = mult1 * stdev(source, length) dev2= mult2 * stdev(source, length) upper = basis + dev lower = basis - dev upper1 = basis + dev1 lower1 = basis - dev1 upper2 = basis + dev2 lower2 = basis - dev2 plot(basis, title='basis', color=red, linewidth=3, transp=0, trackprice=false) p1 = plot(upper, title='upperband1', color=#39ff14, linewidth=1 ) p2 = plot(lower, title='lowerband2', color=#39ff14, linewidth=1 ) p3 = plot(upper1, title='upperband3', color=#39ff14, linewidth=1 ) p4 = plot(lower1, title='lowerband4', color=#39ff14, linewidth=1 ) p5 = plot(upper2, title='upperband5', color=#39ff14, linewidth=1 ) p6 = plot(lower2, title='lowerband6', color=#39ff14, linewidth=1 ) fill(p1, p2) fill(p3, p4) fill(p5, p6)