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Introduced by John Andersen in a September 1996 article appearing in the 'Stock and Commodities' magazine, Standard Error Bands is an envelope whose bands are obtained by the calculation of the beta and alpha coefficients of linear regression. Standard Error Bands are used to measure the strength of a trend, and it is interpreted in a simple way.
Traders should rely on the continuation of the trend when the standard error bands are close to each other. When they begin to widen, this is a sign that the trend is beginning to lose strength because the market is overbought or oversold, and measures should therefore be taken expecting a reversal. As for ranging markets, they have a large envelope in which the prices tend to fluctuate.
The standard error bands function you can get here, named 'standard_error_bands', has three parameters. The first is the period over which the calculation is done, the second the period of a moving average used for smoothing, and the last is a multiplication coefficient, which you can adjust to vary the width of the envelope.
To create upper band:
standard_error_bands(21, 3, 1);
To create the middle band
standard_error_bands(21, 3, 0);
To create the lower band:
standard_error_bands(21, 3, -1);
The function calls two other functions named calcA and calcB, which you can get in the following locations: calcB calcA
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
