Standard Deviation Channel

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Standard Deviation Channel

A Standard Deviation Channel first plots a Regression Line as its center line, and then plots a parallel channel line on either side of the center line at a distance of a user defined multiple of one standard deviation of price from the central regression Line.

The result is a trend based channel that illustrates the range that the market can be expected to move within.

Position and Edit

Regression Line

Create the central regression line by selecting with one left-mouse click the date the regression line is to be calculated from, then move the cursor to the date of the regression line's end point, and click a second time.

The price level at which the clicks occur does not matter. The software uses a mathematical formula to calculate a gradient using the values of the price data type for each trading interval between the selected dates. The default data type is Close.

For more information on the line's method of calculation and display, go to the Regression Line topic.

Channel Lines

The Standard Deviation Channel drawing tool uses a calculation of the standard deviation of the specified price data types in the selected time-frame, in conjunction with a user defined multiple, to determine the distance of each of the channel lines from the center line.

Standard deviation is a measure of how widely price values are dispersed from the average value (the mean). First it is calculated for the variation in price data over selected time-frame, and then the distance that each channel line is placed from the center line is calculated by applying the multiple specified in the Properties dialog to the result of the standard deviation analysis of the price data.

The default data type is Close, and the default multiple is 1. Both of these can be changed by the user in the Properties dialog box.

The result is that when prices are volatile over the time-frame used to calculate the Standard deviation, the channels will be placed further from the central regression line.

psdrwrtolstndevchnl1.gif

When the above 17 day Standard Deviation Channel is dragged to a less volatile period on the same chart, the standard deviation of the Close price data for the 17 days is recalculated and the distance between the central regression line and the channel lines is reduced:

psdrwrtolstndevchnl2.gif

Both the regression line and the deviation value are calculated with reference to the same price data type. By default Close price data is used in both calculations.

The multiple that calculates the distance that the Channel lines are from the central regression line can be individually set for each channel line.

Deviation Multiple Settings

drawtool_stndevchnlprops.pngThis setting controls the multiple which is applied to the Standard Deviation value in order to determine the distance between the channel lines and the center line.

A different multiple can be set for either line.

The default deviation multiple setting is 1. The user can individually change these settings in the Properties dialog box.

Multiples consisting of fractions such as 0.5 or 0.33 can be set.

Properties and Format

Apart from the Deviation multiples settings, there are a number of other properties that can be adjusted by the user in the Regression Percentage Channel Properties dialog box.

Double left mouse click on the lines to open the Properties dialog box, alternatively, single right mouse click to open the pop-up menu, see below, and select its first command - Properties.

The Properties dialog boxes of all Channel drawing tools share a number of features and controls. These common elements are described and explained in Common Settings for Regression Lines and Channels topic.

Pop-up Menu

The pop-up menu (single right mouse click) for Standard Deviation Channel has the standard links: Properties, Cut, Copy, Delete, Lock and Help.

In addition to the standard links, the pop-up menu includes the Standard Deviation Channel command.

Click this to create a parallel line.

Note -  This function will create one parallel trendline, not a duplicate set of parallel Standard Deviation Channel lines. The resulting line is not a Regression line and will not have regression line functionality. When you move or resize the new line it will adhere to standard trendline functionality.

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