# Sigma Bands VertexFX indicator

#### OmSaiTech

Sigma Bands is a VertexFX client-side indicator that uses the statistical concept of standard deviation to identify trend reversals.

The concept behind the Sigma Bands indicator is that prices tend to exhibit normal distribution around the mean. Hence 68% of the time the closing price tends to be within the one-sigma (standard deviation) bands – marked by the upper and lower GREEN bands.

Furthermore, 95.4% of the time the closing price tends to be between the two-sigma bands identified by the upper and lower BLUE bands.
When the price moves outside the two-sigma band we wait for it to re-enter the two-sigma band. Once the price re-enters the two-sigma band it tends to stay inside the band and move towards the centre-line. Furthermore, statistical evidence suggests that the price will enter the one-sigma band and stay in it for 68% of the time. Here, our concept of time is translated into candles. Therefore, a rough estimate would suggest that the price should stay in the one-sigma band for 68 candles in the next 100 candles.

In the first step we calculate the central RED line, which is the mean price. This is the Simple Moving Average (SMA) of the Close over the recent BarsCount candles. In the next step we calculate the standard deviation (sigma) of the Close prices over the recent BarsCount candles.

We now draw a GREEN line above and below the centre line at a distance of one standard deviation from the centre line. The area between these two lines form the one standard deviation band. Theoretically, the close price will reside within this band 68% of the time. In a random sample of 100 consecutive candles, 68 candle closes should lie within these two GREEN lines.

Finally, we draw a BLUE line above and below the centre line at a distance of two standard deviations from the centre line. The area between these two lines form the two standard deviation band. Theoretically, the close price will reside within this band 95.4% of the time.

SIGNALS:

1.A BUY signal is generated when the candle closes above lower Blue line from below. The initial BUY stop-loss should be set to the nearest Swing Low. It is recommended to use other indicators like MACD, Stochastic Oscillator or RSI for confirmation to avoid false entries. The profit target can be set to the centre RED line.

2.A SELL signal is generated when the candle closes below the upper Blue line from above.
The initial SELL stop-loss should be set to the nearest Swing High. It is recommended to use other indicators like MACD, Stochastic Oscillator or RSI for confirmation to avoid false entries. The profit target can be set to the centre RED line

CONFIGURABLE INPUTS

1.BarsCount– The period used to calculate the standard deviation (sigma).

2.MaPeriod– The period used to calculate the centre-line (Red) Moving Average. For example, if set to 1, only the current closing price is used to calculate the central Moving Average. Whereas, if this parameter is set to 5, the central Moving Average is calculated based on the Moving Average of recent 5 closes.

3.TypeBandsMA– The method used to calculate the Moving Average. The allowed values are 0 (Simple Moving Average), 1 (Exponential Moving Average), 2 (Smoothed Moving Average) and 3 (Linear Weighted Moving Average).

4.TypePriceMA– The price field used to calculate the Moving Average. The allowed values are 0 (Close), 1 (Open), 2 (High), 3 (Low), 4 (Median), 5 (Typical) and 6 (Weighted).

https://www.hybridsolutions.com/plugins/client-vtl-plugins/free/sigma-bands-.html

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