Raff Channel indicator
The indicator plots a trend channel using the technique by Gilbert Raff.
The channel axis is a first-order regression. The upper and lower lines show the maximum distance the Close line had moved away from the axis line. Therefore, the upper and lower lines can be considered as resistance and support lines, respectively.
As a rule, most movements of the price occur within a channel, going beyond the support or resistance line only for a short time. If the price remains outside the channel longer than usual or went far enough, it could mean a change in the trend. Thus, the channel contains fairly complete overview of the aggregate price movements, which allows predicting the upcoming price movement with a high probability.
Depending on the settings, the indicator can be applied to implement various strategies for trading within a channel or trading channel boundaries. The indicator can be used independently or in combination with other technical analysis tools.
It is possible to place two instances of the indicator with different calculation intervals on one chart at the same time. In this case, it is possible to improve the accuracy of market entries on a local trend with consideration of the global trend.
The indicator can be used in manual trading and in development of automatic trading systems.
Peculiarities of the calculation formula
- The channel axis is calculated as a first-order regression at a given interval, using the Close prices.
- The standard deviation is calculated as 95% confidence area of the regression line.
- The upper and lower lines of the channel represent the boundaries of the confidence area, taking the coefficient of channel width into account.
- Number of bars - the number of bars to for calculating the channel (20...500);
- Coefficient of the channel width - coefficient of channel width, (1...3.0).
The indicator can be used on any currency pair and any timeframe.
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