Nadaraya-Watson Envelope

This innovative trading indicator builds upon the functionality of the Nadaraya-Watson smoothers, elevating it into an envelope indicator relying on Kernel Smoothing. Its standout feature is the integrated alert system triggered by crosses between price points and envelope extremities, catering to traders who favor a contrarian methodology.

The indicator offers a customizable experience but comes with a default setting that may lead to repainting. Users who wish to avoid repainting can choose a non-repainting smoothing method directly from the settings. The triangle labels included in this indicator enhance its real-time application utility.

How to Trade the Kernel Smoothing Envelope Indicator?

Understanding Non-Repainting Settings

This tool helps traders identify extreme price levels by estimating the underlying price trend and calculating mean absolute deviations from it. This result is then added to or subtracted from the underlying estimated trend. The non-repainting method achieves this by employing an "endpoint Nadaraya-Watson estimator," delivering results akin to traditional band indicators.

Understanding Repainting Settings

For those using the repainting method, it's based on the Nadaraya-Watson estimator to forecast the underlying price trend. The construction of band extremities mirrors the non-repainting approach. Price reversals are anticipated upon crossing envelope extremities, indicated by triangles on the chart. In real-time scenarios, these triangles are fixed at their initial appearance, providing consistent alerts regardless of envelope recalculations.

While alerts for price and envelope extremity crossings are a popular feature, we advise against relying solely on this method for real-time trading. There is currently no comparative data that suggests this indicator outperforms traditional band/envelope/channels indicators.

Customizing Your Indicator Settings

• Bandwidth: Adjusts the smoothness of the envelopes, with higher values leading to smoother outcomes.
• Mult: Sets the width of the envelope.
• Source: Designates the input source for the indicator.
• Repainting Smoothing: Determines whether a repainting or non-repainting method is used for the indicator's calculations.

Explore Related Scripts

For an in-depth look at the Nadaraya-Watson estimator, click the link below:

Explore Nadaraya-Watson Estimator Script

FAQ

How can I access the Kernel Smoothing Envelope Indicator?

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

What does the "Band Range" setting do?

It determines the smoothness of the indicator; higher ranges provide a smoother appearance, which can aid in identifying long-term trends.

Can I use this indicator for day trading?

Yes, but it's recommended to use this tool alongside other indicators to confirm signals due to its contrarian approach.