Charting and Studies User Guide - CQG.com

Page 506
Nearly all momentum based indicators look at momentum on a continuous basis and have no
automatic adjustment for the time of day that it is, or what the normal behavior is at that time.
Time Average Bands analyses both the time of day and its relationship to range. The study
calculates the current time of days range in relationship to its user defined average of range,
and from a propriety algorithm, creates a variable moving average depending on that
relationship. The greater the range from the normalized range the lower the moving average
and vice versa. The limits are set between a 3 period and 21 period. Based on this expansion or
contraction, it takes another propriety algorithm and then places 1 and 2 and 3 standard
deviations around the opening of the current bar if the offset is zero or the close if the offset is
1. This is so that the value on the current bar is fixed. The lowest timeframe for
computation is set at a 15 minute bar.
Interpretation
Time Average Bands are only touched on briefly in Trading Time on Page 50, due to the fact
that they had a scaling problem as a custom study. However, a more complete explanation and
video is on www.i-traders.com.
The fact that the bands use standard deviations around a moving average is a similar concept
to Bollinger Bands. However, by taking the relationship between range instead of close to close,
plus the skew associated with a variable moving average that falls if range expands, means
that whilst one of the primary uses of the bands is as a breakout method, there subsequent
behavior having qualified that break is significantly different. The bands will expand by far more
which means that there are rarely subsequent breakouts once that trend has developed. Often
what is a breakout on Bollinger is simply a move to support or resistance in Volatility Time
Bands which helps prevent false breakout trades. A breakout is defined as a close outside of the
3 rd deviation.
Another critical difference is the fact that the bands value is fixed on the current bar when it
opens or is offset forward if based on the close, which means that the trader can accurately
assess what the true relationship has been between the bands and price, especially when
looking at extremes of bars in relationship to the bands or breakouts. Additionally, breakouts
systems can be built by entering on stop instead of waiting for the close of the bar. This has
particular use for day traders. This is done in one of two ways. If price is using the close to
calculate then the values of the bands are offset one bar forward. If using the opening then the
offset can be set to zero as the bands values will also be fixed.
These breakouts can be further qualified by price moving beyond the 3 rd deviation of the
Volatility Time bands or the 4 th deviation of the Time Average Bands. They also have significant
power in qualifying traditional breakouts in Bollinger Bands, especially on individual stocks.
www.i-traders.com has various modules, scanning engines and educational pieces that highlight
the improvement in accuracy of these breakouts. They can also be used to qualify popular
reversal patterns such as Tom Demarks TD Combo and TD Sequential.
Please note that this study uses a long lookback period. On daily charts with little history, you
may need to change TimeAvRngLen to 10 in order to have enough data for the calculation.
Third-Party Studies