A technical indicator providing ATR based volatility bands around the price.
Overview
The Stoller Average Range Channels (a.k.a. STARC Bands) indicator was developed by Manning Stoller in the 1980′s. Similar to Bollinger Bands, the STARC bands are designed to interpret market volatility using a measure of the Average True Range (ATR). The STARC Bands create a channel above and below a moving average of the instrument’s underlying price; the width of the channel expands and contracts depending on the fluctuation in the ATR.
The upper STARC band is calculated by adding a value of the (ATR * ATRMultiplier) to the moving average. The lower STARC band is calculated by subtracting a value of the (ATR * ATR Multiplier) to the moving average.
STARC Bands on the EUR/GBP 4H Chart on 3/29/2011
Source: VT Trader
Interpretation
The STARC Bands are considered to encapsulate the majority of the instrument’s price action between the bands allowing the bands to define the normal upper and lower limits of price action. This helps the trader determine higher probability, lower risk trading opportunities using the general assumption that price often returns to its median (the moving average).
- Price action that rises to the upper band offers a lower risk selling opportunity (and a high risk buying opportunity.
- Price action that declines to the lower band offers a lower risk buying opportunity (and a high risk selling opportunity.
These assumptions are not to say that the price action will not go against these rules. In fact, some traders believe that a penetration of the upper or lower STARC band indicates an increased momentum in the direction of the band penetration.
Implementation
The ATR Periods and ATR Multiplier as well as the STARC Bands Price, Periods, and Band Type inputs have been parameterized to allow the user full customization of this indicator.
