DBMA - Dual Bollinger Moving Average

The Dual Bollinger Moving Average indicator combines a customizable moving average with two sets of Bollinger Bands to help traders identify price compression and optimal pullback entry zones.

Usage

The Usage section describes how the script can be used to identify trend entries and manage exits.

• Pullback Entries: This tool helps determine the validity of a pullback by measuring the price distance from the central moving average. Ideally, a pullback entry should occur when the candle low is within the bands (at least within the 1.0 SD far band, or preferably the 0.5 SD near band). If the price is outside these bands, the trend may be overextended for a safe entry.
• Volatility Compression (Squeeze): The indicator uses colored bands to visualize different levels of volatility contraction based on the relationship between Bollinger Bands and Keltner Channels.
  • Red: High-compression squeeze.
  • Orange: Mid-compression squeeze.
  • Yellow: Low-compression squeeze.
  • Green: Squeeze has "fired" (volatility is expanding).
• Trailing Stop Management: Traders can use the lower bands as a cushion for trailing stop losses. Instead of exiting immediately upon a close below the moving average, a trader might wait for a close below the far 1.0 SD band to confirm a trend reversal, allowing the trade more room to breathe during minor fluctuations.

Details

The script is based on concepts from John Carter’s TTM Squeeze, specifically identifying periods where Bollinger Bands are enclosed within Keltner Channels. The implementation uses three different ATR multipliers (1.0, 1.5, and 2.0) for the Keltner Channels to differentiate between various levels of price compression. This logic is adapted from the Squeeze Momentum indicator by LazyBear.

The indicator offers three types of central moving averages: Simple Moving Average (SMA), Exponential Moving Average (EMA), and Volume Weighted Moving Average (VWMA). By default, the script calculates two sets of bands at 0.5 and 1.0 standard deviations to create a "ribbon" effect around the central average.

Settings

Moving Average

• MA Length: The lookback period for the central moving average (default is 20).
• MA Type: Selects the calculation method (SMA, EMA, or VWMA).
• MA Source: The price data used for the calculation (typically "Close").
• MA Color/Width: Customizes the visual appearance of the central line.

Bollinger Bands

• Show Upper/Lower Bands: Toggles the visibility of the bands.
• Near Band: Sets the standard deviation for the inner band (default 0.5).
• Far Band: Sets the standard deviation for the outer band (default 1.0).
• Band Colors: Sets the default colors for the bands when the squeeze logic is disabled.

Squeeze

• Squeeze Colors: Toggles the dynamic color-coding of the bands based on volatility compression.
• Squeeze Level Colors: Customizes the specific colors for High, Mid, Low, Fired, and No Squeeze states.

FAQ

How do I interpret the different colors on the bands? The colors indicate volatility levels. Red, orange, and yellow represent varying degrees of compression (squeezes), while green indicates that the squeeze has released and price volatility is expanding. Blue indicates a neutral state with no squeeze detected.

Can I use this for trailing stop losses? Yes. A common method is to use the "Far Band" as an exit trigger. If the price closes outside this band against your trend, it suggests the momentum has shifted significantly enough to warrant an exit.

How can I access the Dual Bollinger Moving Average? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.