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Indicators A ~ Z > Indicators O ~ P > Percentage Bands
Contents > Indicators O ~ P > Percentage Bands
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Percentage Bands

Percentage Bands are a simple trend-following system that plots bands at a set precentage above and below the current price. The bands include a ratchet mechanism to ensure that the lower band does not retreat lower during a long trade and the upper band does not rise during a short trade. The system uses similar logic to Percentage Trailing Stops.

Percentage Band Signals

The signals may be used for entries and exits. In an up-trend:

  • Go Long when price closes above the upper band.
  • Exit the long position when price closes below the lower band.

In a down-trend:

  • Go Short when price closes below the lower band.
  • Exit the short position when price closes above the upper band.
Examples

Nymex Light Crude (CL) down-trend 2014 to 2016 plotted with Percentage Bands at 10% and 500-day Linear Regression as a trend indicator.

Nymex Light Crude with Percentage Bands at 10% and 500-day Linear Regression
  1. Go short [red down arrow] when price closes below the Lower band and Linear Regression line is sloping down.
  2. Exit [orange up arrow] when price closes above the upper band.

Visa (V) up-trend 2011 to 2014 plotted with Percentage Bands at 10% and 500-day Linear Regression as a trend indicator.

Visa (V) with Percentage Bands at 10% and 500-day Linear Regression
  1. Go long [green up arrow] when price closes above the upper band and Linear Regression line is sloping up.
  2. Exit [orange down arrow] when price closes below the lower band.

Percentage Bands Setup

The default is set as 10 percent.

Closing Price is set as the default option. The alternative is High/Low (see Formula below).

See Indicator Panel for directions on how to set up an indicator — and Edit Indicator Settings to change the settings.

Percentage Bands Formula

Percentage Bands are normally calculated using closing prices:

  1. Add and subtract the selected percent (normally 10%) from the Closing Price and plot the result as the band for the following day
  2. There is also built in a ratchet mechanism so that the lower band does not move lower during a Long trade nor rise during a Short trade.

If you select the High/Low option, the bands are calculated from the High and Low prices rather than the Close:

  • The lower band is calculated by subtracting the selected percent (normally 10%) from the High.
  • The upper band is calculated by adding the selected percent (normally 10%) to the Low.

Percentage Bands Evaluation

More volatile stocks require larger percentages whereas bands using average true range adjust as volatility increases.



 
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