Emilio Super Bands VTL scriptis a VertexFX custome indicator that is used to confirm the direction of the market trend and as a stop-loss calculator.
There are many bands-based indicators like Bollinger Bands that provide the trading range to the price movements. The general concept behind such genre of indicators is that whenever price breaks out of these bands a trend is established and a trade is initiated in the direction of the breakout. The Emilio SuperBands indicator employs the concept of bands using Average True Range (ATR); however, it is not used for entry signals but rather for exit signals. Whenever a trend is identified (through other indicators and means), this indicator is employed as a trailing stop-loss calculator. It has shown to provide good performance as a trailing stop-loss signal with very little lag thereby protecting trading profits during trend reversals.
In the first step we calculate the True Range, which is the maximum price movement intraday today, or from previous close.
True Range = Max(CurrentHigh, PreviousClose) – Min (CurrentLow, PreviousClose)
In the next step we calculate the Moving Average of the True Range of the specified PERIOD using the MA_METHOD. This is termed as the Average True Range (ATR).
Finally, we plot the upper band, which is derived by adding the product of MULTIPLIER and Average True Range to the current bar High. Similarly, we plot the lower band by subtracting the product of MULTIPLIER and Average True from the current bar Low.
During an uptrend, we identify rising swing high pivots of the lower band and use it as our trailing stop-loss. Whenever the price touches or goes below then most recent swing high pivot the bullish trade is terminated. Similarly, during a downtrend, we identify falling swing low pivots of the upper band as our trailing stop-loss. If there is a reversal and price rises to touch or cross above the recent upper swing low pivot, then the bearish trade is terminated.
This indicator does not provide entry signals and therefore should not be interpreted in any way to identify entry signals. Separate indicators should be used to identify entry signals.