Bollinger Bands Filter

The Bollinger Bands Filter indicator is a volatility-based tool designed to identify potential trend reversals and breakouts by filtering price action against standard deviation bands. It provides clear visual signals when price breaches established volatility thresholds, helping traders spot early trend continuations or band failures.

Usage

The Bollinger Bands Filter can be used to identify trend shifts based on price closes relative to the upper and lower bands.

• Long Signals: A long signal is plotted when the price closes above the upper band. This typically suggests a bullish breakout or the start of a positive trend.
• Short Signals: A short signal is plotted when the price closes below the lower band. This suggests a bearish breakout or the start of a negative trend.
• Trend Visualization: The basis line and bar colors change based on whether the price is above or below the midline, providing a secondary layer of trend confirmation.

This tool is particularly effective during "Bollinger Band Squeezes," where a breach of the bands following a period of low volatility often precedes significant price movement. While it can be applied to Heikin Ashi candles to smooth out trends, users should note that HA candles do not reflect the actual execution price.

Details

This script is based on the classic Bollinger Bands concept developed by John Bollinger, which utilizes a Simple Moving Average (SMA) as a baseline and sets bands at a specific number of standard deviations away.

Unlike the traditional 20-period SMA and 2-standard deviation setup, this filter defaults to a 55-period SMA and 1 standard deviation. This tighter configuration is designed to act as a more sensitive filter for trend identification. The indicator is non-repainting, meaning signals are confirmed upon the close of the candle and will not change thereafter.

Settings

Inputs

• Source: Determines the price data used for calculations (default is Close).
• SMA Length: Sets the lookback period for the Simple Moving Average basis line (default is 55).
• Standard Deviation: Adjusts the multiplier for the bands. A lower value creates tighter bands, while a higher value captures more price action (default is 1.0).
• Color Bars: A toggle to enable or disable the candle coloring based on trend state.

FAQ

How do I use the Bollinger Bands Filter?

Apply the indicator to your chart and look for the triangle shapes. An upward triangle below the bar indicates a bullish signal, while a downward triangle above the bar indicates a bearish signal.

Can I set alerts for these signals?

Yes, alerts are optimized for this script. You can create alerts for both Long and Short signals using the "Once per bar close" setting to ensure the signal is confirmed.

How can I access the Bollinger Bands Filter?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.