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The volatility channels indicator is used as a confirmation rule to enter long or short trades. When long rules are triggered, enter long when the price breaks up the upper volatility band and when short rules are triggered, enter short when the price breaks down the lower volatility band. The volatility channels adjust quickly to price movement and therefore the breakout should occur within the next few bars.
Here is a trading system example:
rule1 = cross(close, sma(close, 30));
buy = hhv(rule1, 6) and cross(close, VolatilityChannels(14, 0));
The buy rule gives a signal when the close price crosses above the upper band of the volatility channel and if at the same time the "rule1" was TRUE during the last six trading days.
The volatility channels indicator was created by Larry William, an author and commodity trader from the state of Montana, USA (according to Wikipedia).
The function has two parameters:
Period: The lookback period used to calculate the higher and lowest channel levels
BandType: A value that determines whether to return the upper or the lower band. To get the lower band set this value to one and to get the upper band set this value to zero.
