Time Average Bands (TAvBand)

This study looks at the current range of a bar for the time of day in relationship to the average of range. From that, it applies a moving average between the range of 3 and 21 depending on the relationship of the current range to the historical. It then places 1, 2, 3, and 4 standard deviations around the price.

This study can be applied to:

•      Bar chart

•      Candlestick chart

•      Equalize Sessions chart

•      Fill Gap chart

•      Line chart

•      TBTF chart

•      Yield chart

The study appears on the chart as seven curves. TABMA, TABLo1, TABLo2, and TABLo3 curves reference to 1, 2, 3, and 4 standard deviations below the moving average and TABHi1, TABHi2, TABHi3, TABHi4 to 1, 2, 3, and 4 standard deviations over the moving average. All curves are overlaid.

Philosophy

Time Average Bands are only touched on briefly in Trading Time on page 50, due to the fact that they had a scaling problem as a custom study.

Nearly all momentum based indicators look at momentum on a continuous basis and have no automatic adjustment for the time of day that it is, or what the normal behavior is at that time. Time Average Bands analyses both the time of day and its relationship to range. The study calculates the current time of days range in relationship to its user defined average of range, and from a propriety algorithm, creates a variable moving average depending on that relationship. The greater the range from the normalized range the lower the moving average and vice versa. The limits are set between a 3 period and 21 period. Based on this expansion or contraction, it takes another propriety algorithm and then places 1 and 2 and 3 standard deviations around the opening of the current bar if the offset is zero or the close if the offset is 1. This is so that the value on the current bar is fixed. The lowest timeframe for computation is set at a 15 minute bar.

Interpretation

Time Average Bands are only touched on briefly in Trading Time on page 50, due to the fact that they had a scaling problem as a custom study.

The fact that the bands use standard deviations around a moving average is a similar concept to Bollinger Bands. However, by taking the relationship between range instead of close to close, plus the skew associated with a variable moving average that falls if range expands, means that whilst one of the primary uses of the bands is as a breakout method, there subsequent behavior having qualified that break is significantly different. The bands will expand by far more which means that there are rarely subsequent breakouts once that trend has developed. Often what is a breakout on Bollinger is simply a move to support or resistance in Volatility Time Bands which helps prevent false breakout trades. A breakout is defined as a close outside of the 3^rd deviation.

Another critical difference is the fact that the bands value is fixed on the current bar when it opens or is offset forward if based on the close, which means that the trader can accurately assess what the true relationship has been between the bands and price, especially when looking at extremes of bars in relationship to the bands or breakouts. Additionally, breakouts systems can be built by entering on stop instead of waiting for the close of the bar. This has particular use for day traders. This is done in one of two ways. If price is using the close to calculate then the values of the bands are offset one bar forward. If using the opening then the offset can be set to zero as the bands values will also be fixed.

These breakouts can be further qualified by price moving beyond the 3^rd deviation of the Volatility Time bands or the 4^th deviation of the Time Average Bands. They also have significant power in qualifying traditional breakouts in Bollinger Bands, especially on individual stocks. They can also be used to qualify popular reversal patterns such as Tom Demarks TD Combo™ and TD Sequential™.

This study uses a long lookback period. On daily charts with little history, you may need to change TimeAvRngLen to 10 in order to have enough data for the calculation.

TAvBand Parameters