Envelope EMA deviation
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Thread: Envelope EMA deviation

  1. #1

    Envelope EMA deviation

    I'd love to start by apologizing if that is the incorrect forum to post this subject.

    I have been recently trying to use just a few indiors (two to be precise, EMA and envelopes according to EMA) for swing trading.

    However, although I have done some research on google, I cannot find an analytical and serious response as to what precisely does the deviation represent (also called channel coefficient?) .

    I understand the rest of the formula, but because im with envelopes, I see just how much they are affected by the deviation, however I don't understand what the deviation applies to, and how to correct it. Is it that the deviation from EMA current price rate?

    Say if current rate is 1.300, a version of 5% or percent5 will be utilized to calculate the upper and lower band?

    I'd really appriciate if anyone would like to clarify, or point me to some good link.

    Thanks ahead of time.

  2. #2
    From the book : Come into my trading area

    A moving average reflects the average consensus of worth, but what is
    the meaning of a channel? The upper channel line reflects the ability of
    bulls to push prices above the average consensus of worth. It marks the
    normal limit of market optimism. The lower channel line reflects the energy
    of bears to push prices below the average consensus of worth. It marks the
    normal limit of market pessimism. A well-drawn channel helps diagnose
    mania and melancholy. Most software progr draw stations according
    for this formulation:

    Upper channel line = EMA EMA #8226; Channel coefficient
    Reduced channel line = EMA #8722; EMA #8226; Channel coefficient

    A well-drawn channel includes the bulk of prices, with only a couple of
    extremes poking out. Adjust the coefficient until the channel comprises
    approximately 95 percent of all prices for the past several months. Mathematicians
    call this the 2nd standard deviation channel. Most software
    packages make this modifiion very easy.
    Find proper channel coefficients for any market by trial and error. Keep
    adjusting them until the channel holds approximately 95 percent of all data, with
    only the greatest tops and the lowest bottoms sticking out. Drawing a channel
    is similar to trying on a top. Pick the size in which the entire body fits comfortably,
    with only the wrists and the throat poking out.

    Different trading vehicles and timeframes require different channel
    widths. Volatile markets demand wider channels and greater coefficients.
    The more the timeframe, the broader the channel; weekly stations tend to
    be twice as broad as dailies. Stocks often demand wider channels than
    futures. A good time to review and adapt channels in futures is once an
    old contract nears expiration and you change into the new front month.
    A channel attracted in an uptrend will fit the peaks. Rallies in a bull
    market are substantially stronger than declines, and bottoms seldom get to the
    lower channel line. In a downtrend, a channel will track bottoms,
    while the tops are too limp to climb into the upper channel line. It is unnecessary
    to draw two separate stations, one for the tops and the other for
    the bottoms: simply comply with the dominant crowd. In a flat market expect both
    tops and bottoms to touch their channel lines.
    Once we are bullish, we want to buy value close to the rising EMA and take
    profits once the market becomes overvalued#8212;at or above the upper channel
    line. When bearish, we want to go short close to the falling EMA and cover
    once the market becomes undervalued#8212;below or at the lower channel line.

    If you buy near a rising moving average, consider profits in the vicinity of
    the upper channel line. If you sell short close to a falling moving average,
    cover in the vicinity of the lower channel line.

    When prices blow from a channel but then return into the moving average,
    trade from the path of the incline of that MA, using a profit goal near
    the channel line.

    If a moving average is essentially flat, go long at the lower channel line,
    sell short at the upper channel line, and make profits when prices return to
    their moving average.

  3. #3

    Thanx for the answer, I've been studying this book recently, but he does not go into depth about what the station co-efficient signifies (deviation from the current price rate I presume at this stage).
    Anyone who can enlighten me?


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