Stochastic Bollinger Bands1
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This custom technical indicator is designed to provide traders with a unique visual tool that combines two popular market analysis methods: the Stochastic Oscillator and Bollinger Bands. By layering these two methodologies, the script aims to identify extreme price momentum and potential reversal points more clearly than using either tool alone.
How the Logic Works
The indicator operates through a two-step calculation process:
1. Establishing the Foundation (The Stochastic Layer) First, the script calculates a Stochastic value. In standard trading, the Stochastic Oscillator tracks the current price relative to its past price range to determine if an asset is "overbought" or "oversold." This serves as the primary data source for the indicator, capturing the underlying momentum of the market.
2. Applying Volatility Boundaries (The Bollinger Layer) Instead of applying Bollinger Bands directly to the main price chart (like a stock price or currency pair), this script applies them specifically to the Stochastic values calculated in the first step.
It creates three specific lines based on that data:
- Upper and Lower Bands: These act as dynamic "envelopes" around the Stochastic momentum. They define the boundaries of what is considered "normal" volatility for the current momentum.
- Middle Line: This provides a baseline, showing the average trend of the momentum.
What this means for the Trader
By wrapping the Stochastic Oscillator inside Bollinger Bands, the indicator creates a visual "channel" for momentum.
When the Stochastic line (the primary movement) pushes outside of the Bollinger Bands, it signals that the momentum is becoming unusually extreme. This setup helps traders identify moments where a trend might be overextended and due for a correction, providing a more nuanced view of market behavior than standard oscillators provide on their own.
#property copyright "Copyright © 2007, Matt Edmonds."
#property link "matt.edmonds@gmail.com"
//---- indicator settings
#property indicator_separate_window
#property indicator_buffers 4
#property indicator_color1 Yellow
#property indicator_color2 White
#property indicator_color3 White
#property indicator_color4 White
extern int StochasticPeriod=1;
extern int BollingerPeriod=10;
extern int BollingerDeviation = 1;
extern int BollingerShift = 0;
//---- indicator buffers
double Stochastic[];
double BollingerUpper[];
double BollingerLower[];
double BollingerMiddle[];
//+------------------------------------------------------------------+
//| Custom indicator initialization function |
//+------------------------------------------------------------------+
int init()
{
//---- 2 additional buffers are used for counting.
IndicatorBuffers(4);
//---- drawing settings
SetIndexStyle(0,DRAW_LINE,STYLE_SOLID,2);
SetIndexStyle(1,DRAW_LINE,STYLE_SOLID,1);
SetIndexStyle(2,DRAW_LINE,STYLE_SOLID,1);
SetIndexStyle(3,DRAW_LINE,STYLE_DOT,1);
SetIndexBuffer(0,Stochastic);
SetIndexLabel(0,"Stochastic Bollinger Bands");
SetIndexBuffer(1,BollingerUpper);
SetIndexBuffer(2,BollingerLower);
SetIndexBuffer(3,BollingerMiddle);
SetIndexLabel(3,"Bollinger Middle");
//---- name for DataWindow and indicator subwindow label
IndicatorShortName("Stochastic Bollinger Bands");
//---- initialization done
return(0);
}
//+------------------------------------------------------------------+
//| Calculations |
//+------------------------------------------------------------------+
int start()
{
int limit;
int i;
int counted_bars=IndicatorCounted();
//---- check for possible errors
if(counted_bars<0) return(-1);
//---- last counted bar will be recounted
if(counted_bars>0) counted_bars--;
limit=Bars-counted_bars;
//---- main loop
for(i=0; i<Bars; i++)
{
Stochastic[i]= iStochastic(NULL, 0, StochasticPeriod, 1, 3, MODE_SMA, 0, MODE_MAIN, i);
}
//---- done
for(i=0; i<Bars; i++)
{
BollingerLower[i] = iBandsOnArray(Stochastic,0,BollingerPeriod,BollingerDeviation,BollingerShift,MODE_LOWER,i);
BollingerUpper[i] = iBandsOnArray(Stochastic,0,BollingerPeriod,BollingerDeviation,BollingerShift,MODE_UPPER,i);
BollingerMiddle[i] = iBandsOnArray(Stochastic,0,BollingerPeriod,BollingerDeviation,BollingerShift,MODE_MAIN,i);
}
return(0);
}
//+------------------------------------------------------------------+
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