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!