Developed by Manning Stoller, the Stoller Average Range Channels are an indicator designed to encompass most of the price action, just like every other banding indicator, and thus pinpoint higher-probability entry points when the price crosses through any of its boundaries. Here are the formulas:. Keep in mind, however, that before the calculation is executed, ATR is multiplied by a user-specific multiplier factor, which is most often 2.
Commonly, the Simple Moving Average tracks back six periods. As a result, any moves that spike out of the STARC channel are considered either as excessive, or as a sign that the current trend is gaining strength depends on whether the market is moving sideways or trending.
Thus, there are two ways for a boundary break to be interpreted, which in both cases call for a low-risk high-probability trade. First , if the the market is range-bound, then breaks outside of the STARC channel are generally expected to stall and eventually retrace back to the Simple Moving Average. For example, if the price is declining and breaks through the lower boundary, while the market is generally trading sideways, a sound assumption would be that the market will soon reverse and head back toward the SMA and very often even touch the opposite band.
However, no pattern is fool-proof and it would be best to wait for a confirmation from a reversal bar pattern. If confirmed, then the scenario at hand provides a low-risk buying opportunity and a high-risk selling opportunity.
Second , if the market is trending, then moves that break any of the STARC bands are commonly considered as trend acceleration signs. Thus, if during an uptrend the market accelerates and penetrates through the upper STARC band, the price is much less likely to retrace back to its initial level or to touch the lower boundary line.
Instead, it stands a higher chance of consolidating entering a small trading range at the higher levels it just reached. Often, as a sign of the uptrend strengthening, the tight trading range will be followed by further acceleration, thus a flag or pennant continuation pattern will be formed.
Of course, occasionally the price will retrace back entirely to the SMA or at least partially. However, in most cases, as the uptrend continues, the SMA will have tracked higher and as the price action pulls back, it will meet the SMA at a higher price level than the initial one. Founded in , Binary Tribune aims at providing its readers accurate and actual financial news coverage. Our website is focused on major segments in financial markets — stocks, currencies and commodities, and interactive in-depth explanation of key economic events and indicators.
Trading forex, stocks and commodities on margin carries a high level of risk and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite.
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