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Walter - I happen to have brought in a book to my office today titled
"Technical Analysis for the Trading Professional" written by Constance Brown.
Chapter 11, starting on page 239, is called "Volatility Bands on
Oscillators". She uses a formula for volatility bands given to her by Manning
Stoller, although he used the formula on price data vs. an oscillator. The
volatility bands are plotted on a 14-period RSI. She likes the formula
because "it gives very few signals that warrant attention but produces one
particular signal that nearly always demands respect".
Here is the signal in Constance's words: "Look at the upper and lower
extreme ranges for the RSI. When the RSI is near an extreme high or low and
is touching the volatility band, the indicator will follow the strong move
with a pullback from the band. The market signal occurs when the RSI attempts
to resume the former trend and fails to challenge or reach the outer band a
second time. That is it. Period. Nothing more to add. The RSI does not
necessarily have to display divergence or create a reversal signal-just fails
to touch the outer band on a second attempt." Because markets decline faster
than they rise, the volatility band formula will "accommodate independent
coefficients that allow independent setup of the upper and lower bands. If
the bands are set up correctly, the RSI should not travel outside the bands
but rather travel in extreme moves along the boundries of the bands."
Unfortunately, only the ELA Tradestation code is listed in her book so if
anyone can transpose to Metastock that would be great. You can also check out
her Web site at www.aeroinvest to get a synopsis of the book.
One last thing, is anyone familiar with an indicator pattern called
Positive & Negative reversals developed by Andrew Cardwell and used by
Constance Brown. It also is used predominately with the RSI but can work on
many oscillators. A Positive reversal is when the oscillator is at a lower
low but the price is at a higher high. Both Andrew and Constance claim that
this indicator is a good predictor of future prices. I would love the
Metastock code if available. It probably would be similar to the Divergence
codes - Lenny
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