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The Adaptive Price Channel is a technical analysis indicator composed of two lines: the upper and lower lines. These lines are created by calculating the highest high value and lowest low value over a non-fixed lookback period. The lookback period value changes after each bar according to the change of the 30-Bar Standard deviation of the close price. The higher the volatility of the stock or asset you are trading the larger the distance between the upper and lower lines will be. And the lower the volatility, the closer the upper and lower lines will be.
As with other channel indicators, such as the Bollinger bands, Keltner Channel and Donchian Channels, there are several interpretations to the adaptive price channel. Usually trend traders buy when the price crosses above the upper line and sell when the price crosses below the lower line. Other traders will do the exact opposite, that is, buy when the price crosses below the lower line and sell when it crosses above the higher line.
The Adaptive Price Channel function is composed of three parameters. The first one allows you to specify the maximum lookback period, while the second parameter lets you specify the minimum lookback period. The maximum and minimum lookback periods are there so that you have greater control over the adaptive period involved in the calculation of the channel upper and lower lines.
The last parameter should be set to specify whether to display the upper line (1) or the lower line (0).
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.
