|
Projection
Bands
Description
Projection
Bands were developed by Mel Widner, Ph.D.
They were originally introduced in the July
1995 issue of Technical Analysis of Stocks
& Commodities magazine.
Projection
Bands are similar in concept to other types of
bands including moving average bands, Price
Channels, Envelopes,
and Bollinger
Bands. They
also have some of the characteristics of channel
lines such as Raff
Regression Channels.
Projection
Bands are plotted by finding the minimum and
maximum prices over the specified number of days
and projecting these forward (parallel to a linear
regression line). The
resulting plot consists of two bands representing
the minimum and maximum price boundaries.
Prices will always be contained by the
bands, unlike Bollinger Bands.
Interpretation
Projections
Bands are used much like other types of
bands--they help gauge the ebb and flow of
optimism and pessimism.
When prices are at or near the upper band,
extreme optimism is indicated--look for prices to
move down to more rational levels.
Likewise, when prices are at or near the
lower band, extreme pessimism is indicated--look
for prices to move up to more rational levels.
It
is recommended that all band generated signals be
confirmed by other indicators, because prices will
often ride along a band for an extended amount of
time during strong trending markets.
During trending markets, you can use bands
to trade short-term reactions against the primary
trend. In
trading range markets, you can use the bands to
trade overbought/oversold levels.
Indicators like the VHF,
CMO, and r-squared
can be used to gauge the trendiness of the market. |
