Midas Analysis

Trading and Technical Analysis with MIDAS

Exits with Standard Deviations Bands

We’ve just introduced Standard Deviation Bands, which took the role of resistance and accurately captured a number of pullbacks.  StdDev Bands can be used in trending and sideways markets.  There’s also a third role it can play — as an exit for strong trends.

 

Let’s look at a recent 2min chart of 6E (Euro Futures).   Overall, we have a range bound day, but it’s a large range and price makes some big swings in between.  Each of those swings can be considered an accelerated trend, and we could use TopFinder to track them.

 

Standard Deviation Bands, when fitted to pullbacks or early bars, can play a similar role as an accelerated support line for the upswing.  If price falls below the band, we have a clear signal to exit.

 

The 6E chart below shows three such cases.  From each swing low we launch an S curve. which provides limited value in itself, mainly telling us it’s a sideways market.  However, from each S curve we can add a stddev band, fit it to the first pullback, and we unlock some powerful signals.  The pullbacks are marked with brown arrows and could be our entry point.  The place where price falls below the band is market in red and would be our exit.  The three curves shown track from pullback entry to exit: 15 ticks, 22 ticks, and 7 tickets.

 

Trending with Standard Deviation Bands

Another powerful tool in the MIDAS arsenal is Standard Deviation Bands.   Experience shows they are applicable in a variety of market conditions, including both sideways and trending markets.  Standard Deviation Bands are created by calculating the standard deviation between price and a MIDAS S/R curve, applying an adjustable multiplier, and plotting that above or below the S/R curve.  The multiplier is adjusted so the band catches early pullbacks, and the longer term curve has predictive properties — such as indicating points of pullbacks + reversals.

 

After the recent uptrend in equities, we had a cooling off period on Friday with DOW futures (YM) trending down to retest 12,000 levels.  We could apply S/R curves like we’ve done in numerous other posts, but let’s focus on our new tool – Standard Deviation Bands.  Let’s look at a 2min chart of YM.  First, we launch a primary R curve from the high of the regular trading hours, around 7:30.  Second, we activate standard deviation bands, pulling a lower curve to match the pullback around 8:30.  This produces a powerful stddev curve that resists the pullbacks at 9:50, 11:26, 12:38  to within a few ticks.  Nice catch!