Pan Bands of Asymmetric Volatility

Pan Bands of Asymmetric Volatility
- A Research-Driven Volatility Framework
and Market Regime Switching Signal

Author： Heping Pan
Swingtum Prediction Pty Ltd, Australia
panhepingism@gmail.com

28/12/2025

 
Description

Move beyond conventional indicators. The Pan Bands of Asymmetric Volatility suite is not merely another technical tool—it is a trading application built upon a peer-reviewed, academically published financial research model [Heping Pan, (2012), "Yin-yang volatility in scale space of price-time: a core structure of financial market risk", China Finance Review International, Vol. 2 Iss: 4 pp. 377 – 405]. This foundation sets it apart, translating rigorous quantitative finance theory into practical market utility.

Traditional volatility measures, like Bollinger Bands®, are limited by their reliance on symmetric standard deviation. They fail to capture the fundamental asymmetry between upward and downward price movements, generate false signals at reversals, and exhibit inherent lag.

Our published research directly addresses these flaws by introducing a formalized Asymmetric Volatility (Yin-Yang Volatility) model. This indicator suite is the practical implementation of that model, offering traders a significant edge through a more accurate, responsive, and nuanced view of market dynamics.

Academic Rigor, Practical Execution

This package delivers the core indicator derived from the published methodology: PanBands.ex4: The primary implementation, plotting dynamic upper and lower asymmetric volatility bands alongside a moving average, and also the central midline, providing a clear equilibrium reference within the volatility framework. In addition, it also translates theory into actionable risk management, generating dedicated stop-loss levels derived directly from the asymmetric band structure.

Advanced, Research-Backed Market Regime Switching Signals:

Leveraging the Pan Bands output, the PanBandsRegime.ex4 indicator （which is available separately） applies a logical layer to generate essential market regime switching signals. It algorithmically identifies:

• The initiation and maturation of trending regimes.
•  Early-stage deterioration and potential reversal points.

This provides a systematic, research-validated framework for contextualizing price action—a critical component for robust manual trading or automated strategy development.

Key Advantages of Pan Bands Indicators:

• Academically Validated: Based on a formal, peer-reviewed volatility model, not just heuristic modification.
• Asymmetry-Aware: Explicitly models the distinct nature of upward (Yang) and downward (Yin) volatility.
• Reduced Noise & Lag: Minimizes false expansions and improves responsiveness at critical market turns.
• Structured Toolkit: Progresses from core analysis to precise trade management and regime classification.

For the sophisticated trader seeking tools with substantive intellectual underpinnings, Pan Bands of Asymmetric Volatility represents a unique convergence of academic finance and practical trading technology. Implement a published research model directly on your charts.

Techincal Details:

Indicator PanBands calculates the band of Pan Yin-Yang Volatility of the price time series of the current time window. See Screenshot 1.

It takes 5 inputs:

• extern int    BandsPeriod=48;            // The width of the time window like in Bollinger Bands
• extern int    BandsShift=0;                 // The time position of the output
• extern double BandsDeviations=2.0;   // The multiplier (k) of the standard deviation
• extern int    MA_Method=MODE_LWMA; // a method for moving average of the output
• extern int    PriceComp=PRICE_CLOSE; // price component used for calculating moving average
• extern double SLRatio =0.25; // used for defining the initial stop loss levels, see output calculation

The meaning of the first two parameters BandsPeriod and Bandsshift are the same as in Bollinger Bands.

It generates 6 outputs:

• double PanMA[];   // The Moving Average
• double PanUB[];   // PanUpperBound
• double PanLB[];   // PanLowerBound
• double PanMid[];  // PanBandsMid
• double PanUSL     // PanUpperStopLoss
• double PanLSL      // PanLowerStopLoss

The outputs are calculated as follows:

• PanUpperBound = MA + k*YangVolatility
• PanLowerBound = MA – k*YinVolatility
• PanBandsMid   = (PanUpperBound + PanLowerBound)/2
• PanUpperStopLoss = PanUpperBound + range*SLRatio
• PanLowerStopLoss = PanLowerBound – range*SLRatio

where range = PanUpperBound - PanLowerBound

Intuitively, the YinVolatility and YangVolatility refer to the downward and upward volatility of the prices respectively. For a full description, refer to a published journal paper: Heping Pan, (2012), "Yin-yang volatility in scale space of price-time: a core structure of financial market risk", China Finance Review International, Vol. 2 Iss: 4 pp. 377 – 405. This research paper is provided here. The exact formulas can be found in this research paper’s formulas (31)-(44).

Indicator PanBands is best to be understood in comparison with Bollinger Bands:

• BollingerUpperBound = MA + k*Volatility
• BollingerLowerBound = MA - k*Volatility

Screenshot 1 displays PanBands in comparison with Bollinger Bands. Here only the PanUpperBound and PanLowerBound and MA are displayed together with BollingerUpperBound and BollingerLowerBound. The differences are clear. For example, on area A, the market turns down as a significant reversal, the Bollinger upper bound still stretches up while the Pan upper bound quickly adapts to the change of the trend and it converges to the moving average (MA). On area B, the market breaks up, this break is quickly signaled by the break of the Pan upper bound,while Bollinger upper bound is still far away with too much lag.

Screenshot 2 displays PanMid - the midline of Pan Bands, which expresses the true center of the asymmetric volatility. Screenshot 3 displays PanUSL and Pan LSL - the upper and lower stoploss levels, which can be used as initial stoploss. Of course, how to use hese stoploss levels is up to the user in their manual trading or automated trading EA's. 

Indicator PanBandsRegime (available separately)

Note: according to the regulation of MQL5.com, there can only be one .ex4 file for an indicator. Therefore, the indicator PanBandsRegime is made available separately. This indicator utilizes the proprietary calculation engine from PanBands  built directly into its code. You do not need to install PanBands separately for this indicator to function.

Indicator PanBandsRegime determines the current market regime on the given time frame such as H1. Four types of market regime are distinguished: Up trend starts and keeps strong; Up trend is weakening and about to end; Down trend starts and keeps strong; Down trend is weakening and about to end. PanSwingtumRegime calculate sophisticated crossings of two PanBands with two different periods - a slow versus a fast one. The input parameters are

// Slow Pan Bands of YinYang Volatility

• extern int    BandsPeriod1=96;     
• extern int    BandsShift1=0;
• extern double BandsDeviations1=3.0;
• extern int    MAMethod1=MODE_LWMA;
• extern int    PriceComp1=PRICE_CLOSE;
• extern double SLRatio = 0.25; // StopLoss levels are not used here  

// Fast Pan Bands of YinYang Volatility

• extern int    BandsPeriod2=48;
• extern int    BandsShift2=0;
• extern double BandsDeviations2=3.0;
• extern int    MAMethod2=MODE_LWMA;
• extern int    PriceComp2=PRICE_CLOSE;
• extern double SLRatio = 025;  // StopLoss levels are not used here  

BandsPeriod1 and BandsPeriod2 are two key parameters that you may like to change value, while other parameters can be left untouched.

The output are two tradable signals:

• double goLong[];   //  100 means up trend is strong,        25 means trend is weakening     
• double goShort[];   // -100 means down trend is strong,  -25 means trend is weakening 

See Screenshot 4.

In Screenshot 4，switch of market regime is shown with red and green vertical lines (only for illustration purpose, not the output of the indicator). The first red vertical line (the left) signals the market regime switches from up trend to down trend. The second red vertical line signals the weakening of down trend. Vice versa are the green vertical lines for signaling the new up trend.

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Mr Heping Pan, the Author

Swingtum Prediction Pty Ltd, Australia

panhepingism@gmail.com

28 December 2025