High Low Bollinger Bands

The High Low Bollinger Bands indicator provides a volatility-based envelope that utilizes high and low price sources to define statistical boundaries where price action is likely to remain contained. This tool aims to identify extreme price points more effectively than standard Bollinger Bands by decoupling the calculation for upper and lower bands.

Usage

The High Low Bollinger Bands can be used to identify potential exhaustion points and mean reversion opportunities. Because the bands are derived from high and low prices rather than a single close price, they provide a more comprehensive view of price extremes.

• Identifying Extremes: When price interacts with the red upper band or green lower band, it suggests the market is reaching a statistical extreme based on its recent range.
• Credit Spreads: Traders can utilize these boundaries to set strikes for credit spreads, such as call and put vertical spreads, identifying levels where the price is statistically unlikely to breach within a given timeframe.
• Trend Monitoring: The basis lines (SMAs) serve as mid-points to track the average movement of the highs and lows.

Details

Unlike traditional Bollinger Bands which typically apply a standard deviation to a single Simple Moving Average (SMA) of the closing price, this version calculates two distinct sets of bands:

1. Upper Band: Based on an SMA of the High prices plus a multiple of the standard deviation of those highs.
2. Lower Band: Based on an SMA of the Low prices minus a multiple of the standard deviation of those lows.

This construction accounts for the natural tendency of highs and lows to expand further than closing prices during periods of volatility, creating a more robust "container" for price action.

Settings

• Length: The lookback period used for both the Simple Moving Average and the Standard Deviation calculations.
• Source Lower: The price source used for calculating the lower band (default is Low).
• Source Upper: The price source used for calculating the upper band (default is High).
• Multiplier Lower: The number of standard deviations to apply to the lower basis line.
• Multiplier Upper: The number of standard deviations to apply to the upper basis line.

FAQ

How do I use the High Low Bollinger Bands?

You can use this tool to identify extreme price levels for mean reversion or as a guide for placing option strikes where price is statistically likely to stay within the boundaries.

How do the alerts work?

The script includes built-in alerts that trigger when the price closes above the upper band or below the lower band, signaling a potential breach of the statistical range.

How can I access this tool?

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