Projection bands

Projection bands are a chart analysis method developed by Mel Widner in the 1990s . The projection bands are a kind of envelope indicator similar to the Bollinger bands or envelopes . Like all technical analysis tools , its informative value is controversial.

calculation

The calculation is based on a regression trend channel that is set over a constant period of time. First of all, this duration (e.g. 14 days) must be specified. In the picture the examination period is marked with green.

A regression line is now mathematically determined by means of the regression analysis. This regression line is the line in which the deviations of the course from the line are minimized using the least squares method . The regression line is shown in Bordeaux red ,

The regression line is now shifted up and down in parallel so that the price trend is always within the bands. The respective closing prices can be used for the calculation. Alternatively, the daily high or low prices can be used. The upper and lower limits, the projection bands, are shown in orange.

Formulas

${\displaystyle b_{t}^{C}={\frac {n*{_{i=0}^{i<n}}((t-i)*C_{t-i})-{_{i=0}^{i<n}}(t-i)*{_{i=0}^{i<n}}C_{t-i}}{n*{_{i=0}^{i<n}}(t-i)^{2}-{_{i=0}^{i<n}}(t-i)}}}$

${\displaystyle PB_{t}^{oben}=Max{_{i=0}^{i<n}}(C_{t-i}+b_{t}^{C}<+i)}$

${\displaystyle PB_{t}^{unten}=Min{_{i=0}^{i<n}}(C_{t-i}+b_{t}^{C}<+i)}$

interpretation

The prerequisite for the interpretation of the projection bands is the presence of a trend. It therefore makes sense to first examine the existence of a trend with the help of a trend strength indicator such as the ADX . The bands can be used in trending markets to speculate on short-term reaction against the prevailing primary trend.

A setback signal is a course that is approaching or is on the upper band. The signal for an uptrend is a price close to or on the lower band.

Related indicators

In addition to the projection bands, Mel Widner developed the Projection Oscillator and the Projection BandWidth , which are based on the Projection Band.

Projection Oscillator

The projection oscillator is another way of displaying the information content of the projection bands.

The projection oscillator indicates the relative position of the closing price. The projection oscillator fluctuates between the values ​​0 and 100. With a value of 100 the closing price is in the upper band, with a value of 0 it is on the lower band, with 50 it is exactly in the middle. In practice, the non-logarithmic variant is usually used, as it has a higher reaction speed than the logarithmic variant.

Formula:

${\displaystyle PO_{t}={\frac {C_{t}-PB_{t}^{unten}}{PB_{t}^{oben}-PB_{t}^{unten}}}*100}$

Usually the moving average of the projection oscillator is used. Widner recommends a period of 3 to 5 days to calculate the average. A particularly high or low value is an indication of a return of the course towards the regression line. Another option to generate signals is to turn the projection oscillator to an extreme range. This means that the course has approached a projection band and then rotated. A trend strength indicator can be used to increase its informative value.

Projection BandWidth

The Projection BandWidth shows the percentage width of the projection bands. A trend reversal is signaled by a high value, while low values ​​for the Projection BandWidth are signs of a strong market situation. This makes Projection BandWidth a trend strength indicator.

Formula:

${\displaystyle PBW_{t}={\frac {PB_{t}^{oben}-PB_{t}^{unten}}{PB_{t}^{oben}+PB_{t}^{unten}}}*200}$

literature

• Mel Widner: Signaling Change With Projection Bands . In: Technical Analysis of Stocks & Commodities . tape 13 , no. 7 , July 1995, p. 275-281 (English).
• Oliver Paesler: Technical indicators: the ideal instrument for every success-oriented investor; Methods, strategies, implementation . FinanzBook-Verlag; [Bonn]: Investor-Verlag, Munich 2007, ISBN 978-3-89879-248-6 .

Web links

• Investor's Forum: Projection Bands (Engl.)
• Projection Bands (Engl.)
• Linear regression in technical analysis (PDF file; 120 kB)
• Tradesignal Online Lexicon: Projection Bandwidth (PBW)