2011issue C0210-11
Constructing percentage-offset moving-average bands
A percentage-offset-band is assembled by scaling a simple-moving-average centerline with fixed offset-factors. The gap is then a variable-width-envelope that follows the level of the average rather than a pair of parallel rails.
- A fifteen-period simple-moving-average of closing prices can serve as the centerline of a percentage-offset-band.
- Upper and lower envelopes are formed by multiplying that centerline by the offset-factors 1.02 and 0.98, a two-percent offset that remains an adjustable construction parameter.
- The construction is a variable-width-envelope: the gap scales with the level of the average, so the band narrows when prices fall rapidly and widens when prices rise.
- The same widening and narrowing appears when the identical multiplicative construction is implemented in more than one charting program.
A centerline first, then an envelope
A percentage-offset-band starts from a simple-moving-average of closing prices. A fifteen-period lookback can serve as that centerline.
Upper and lower envelopes are formed by multiplying the centerline by fixed offset-factors. Factors of 1.02 and 0.98 produce a two-percent offset above and below the average.
Why the rails are not parallel
A multiplicative offset around a moving average does not produce visually parallel rails, because the gap scales with the level of the average. That is what makes the result a variable-width-envelope.
When prices fall rapidly, a percentage envelope around a moving average narrows. When prices rise, it widens. The same widening and narrowing appears when the identical multiplicative construction is implemented in more than one charting program.
The offset is a construction parameter
The offset percentage is an adjustable construction parameter. A two-percent default may be reduced to one percent or, less often, one-half percent.
A workbook plotting caveat
A moving-average workbook can mis-plot the active position when settings produce more frequent trades. That case requires a correction to the position formula and related rebalance formulas.
All readings on this track · 15 readings
- 1990Building a percent-difference moving-average oscillator
- 1991Ease of movement oscillator construction
- 1993A twelve-month moving-average filter for inflation direction
- 1993Constructing two-endpoint JSA moving averages
- 1999Centered moving averages for trend construction
- 2000Constructing a slope-corrected moving average
- 2000Lookback length as a construction check for the modified moving average
- 2001Smoothing balance of market power with a moving average
- 2005Three-state moving-average directional breakout construction
- 2005Constructing a move-adjusted moving average
- 2005Moving-average construction: windows, weights and stops
- 2008Constructing stacked moving-average filters
- 2011Constructing percentage-offset moving-average bands
- 2015Linearity, commutation, and ratio smoothing in moving averages
- 2019Constructing a 50-200 sma-channel for swing entries and exits