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## Standard Error Bands

by Brian Brown, 5385 days ago

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

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What is this?

 Type: Trading Indicator Object ID: 289 Country: All Market: All Style: Technical Analysis

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