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2019issue C0748-56

Constructing exponential-deviation-bands from a midline-average

Exponential-deviation-bands center on a midline-average of close and set width from a recursively smoothed absolute deviation. After the lookback elapses, the three series can be rebuilt from that lookback, a deviation-multiplier, and a choice of simple or exponential midline.

  • The envelope is centered on a midline-average of close, simple or exponential, over a chosen lookback, and the first width measure is the absolute distance from that midline to the latest close.
  • That absolute distance is recursively smoothed with the smoothing-multiplier, which is 2 divided by one plus the lookback length, so recent deviations receive more weight than older ones.
  • Upper and lower envelopes add and subtract the smoothed deviation scaled by a deviation-multiplier, commonly set to 2, from the same midline-average.
  • Relative to a standard-deviation envelope of the Bollinger type, the construction is described as more recent-weighted and as producing a lower breakout-count.
Entries in this reading3 entries
Current trackBollinger Bands84 readingsExponential smoothing117 readingsMoving average449 readings

Center the band on a midline-average

The construction centers a band on a midline-average of close over a chosen lookback. That midline-average may be a simple moving average or an exponential moving average.

The first width measure is the absolute distance from this midline-average to the latest close.

Apply the smoothing-multiplier

That absolute distance is recursively smoothed with the same multiplier used in exponential averaging. The smoothing-multiplier is 2 divided by one plus the lookback length, so recent deviations receive more weight than older ones.

Form the outer envelopes

Upper and lower envelopes are formed by adding and subtracting the smoothed deviation, scaled by an explicit deviation-multiplier, from the same midline-average. The deviation-multiplier is commonly set to 2.

Exponential-deviation bands on daily NYSE Composite

A 20-period SMA midline with a 2× exponentially smoothed absolute-deviation envelope on daily NYSE Composite. The envelope stays relatively tight through the 2018 grind, then blows out as price tags the lower band at the December crash before recovering inside the band. Last-bar levels are the TradeStation numeric readout; earlier points are read off the plotted SMA-centered overlay.
A 20-period SMA midline with a 2× exponentially smoothed absolute-deviation envelope on daily NYSE Composite. The envelope stays relatively tight through the 2018 grind, then blows out as price tags the lower band at the December crash before recovering inside the band. Last-bar levels are the TradeStation numeric readout; earlier points are read off the plotted SMA-centered overlay.NYSE Composite ($NYA) · Daily · 2018-06-01T00:00:00.000Z to 2019-05-17T00:00:00.000Z

Chart header prints TASC Jul 2019 inputs Periods=20, DevMult=2, UseSMA=true, with last-bar readout midline 12862.47, upper 13172.57, lower 12552.38, last 12738.36 on 17 May 2019. A second, faster overlay is visible on the source chart and was not digitized. Midline points other than the last bar are the midpoint of the two envelopes, which is the indicator identity Upper/Lower = midline ± 2×ED. Raster precision is tens of index points, not the readout’s hundredths.

Contrast with a Bollinger-type envelope

Relative to a standard-deviation envelope of the Bollinger type, this exponential-deviation construction is described as weighting recent data more heavily and producing fewer outer-band crossings. That comparison is a breakout-count contrast, not a claim about use in a market.

Inputs needed to plot the three series

Reference implementations expose the lookback, the deviation-multiplier, and a switch between simple and exponential midlines as the only construction inputs needed to plot the three series after the lookback has elapsed.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
43 of 45 in the Bollinger Bands track
202056-56 pp.Next on Bollinger BandsCritiquing exponential variants of Bollinger BandsA published letter distinguished an earlier envelope that used ordinary standard deviation from a later envelope that used an exponential deviation measure.
All readings on this track · 45 readings
  1. 1992Constructing volatility-scaled bands with relative strength index confirmation
  2. 1994Implied volatility as a band-defined regime filter for index options
  3. 1995Constructing projection bands from least-squares slopes
  4. 1995Constructing regression projection bands and range oscillators
  5. 1996Constructing Bollinger bands, percent-b, and stochastics
  6. 1996Constructing mechanical rules from Bollinger Bands and stochastics
  7. 1996Constructing a standard-error envelope around a linear regression
  8. 1996Dual-horizon ratio envelopes and regression error channels
  9. 1997Rational group structure with a trend screen, RSI, and bands
  10. 1997Asymmetric volatility band construction
  11. 1998Constructing three-state filters from Bollinger band envelopes
  12. 1999Combination filters with Bollinger Bands and the relative strength index
  13. 1999Constructing stochastic timed exits and band-RSI reversals
  14. 1999Evaluating Bollinger Bands against fixed-width and range-based envelopes
  15. 2000Constructing a Bollinger Band target as a forward price
  16. 2001Numeric candlestick encoding with local size bands
  17. 2001Ranked candlestick sentiment to band-cross entries
  18. 2002Combining Bollinger Bands, RSI, and a stop-loss
  19. 2002Bollinger Bands remain filters, not forecasts
  20. 2002Constructing a stochastic RSI with Bollinger bands
  21. 2002Constructing a StochRSI and Bollinger mechanical system
  22. 2003Constructing volatility-scaled Bollinger envelopes
  23. 2003Why tick breadth fails as a market personality
  24. 2005Constructing Bollinger bands versus fixed trading bands
  25. 2006Squared versus absolute deviation in envelope construction
  26. 2006Confirming yen crossovers with implied volatility and bands
  27. 2006A daily candle reversal is a hypothesis until shorter sessions fail at the same zone
  28. 2008Rebuild the Relative Strength Index as price-scale bands
  29. 2008Reading Relative Strength Index extremes on one price axis with Bollinger Bands and moving averages
  30. 2011Three-filter confirmation for short-swing futures
  31. 2011Constructing an inverse Fisher stochastic with bands and averages
  32. 2012Constructing a Bollinger Band indicator suite
  33. 2012Stacking price extremes, crossovers, bands, and MACD
  34. 2012Adaptive Bollinger band impulse, trend, and momentum filters
  35. 2013Rescaling stochastic, percent-B, and wave-count parameters
  36. 2014Industry-group quartile pivots as a Bollinger Bands case study
  37. 2014Bollinger Bands as adaptive price envelopes: a 2014 classroom case
  38. 2016Trend-channel entry rules from stacked moving averages
  39. 2016A permission stack for Bollinger, RSI, and the 50-period average
  40. 2017Constructing weighted Bollinger bands and volume averages
  41. 2017Four swing-entry rules that share a timed exit
  42. 2017Two-wave monthly cycles as a regime filter
  43. 2019Constructing exponential-deviation-bands from a midline-average
  44. 2020Critiquing exponential variants of Bollinger Bands
  45. 2020Constructing selectable volatility and moving-average bands
By fieldIndicators and filters682 readingsBy year201975 readings
All 84 readings tagged Bollinger Bands
Also on Bollinger Bands5 readings
1992Constructing volatility-scaled bands with relative strength index confirmation1992Constructing a weighted-average TRIN10 with Bollinger envelopes1996Constructing Bollinger bands, percent-b, and stochastics1997Asymmetric volatility band construction1998Constructing three-state filters from Bollinger band envelopes