Exponential Volatility Bands Using EWMA Standard Deviation

Summary

This indicator constructs price bands around an exponentially weighted moving average. It first takes the logarithm of the input price and updates the average with an exponential weighting factor derived from the chosen period. It then calculates an exponentially weighted variance of the deviations from that average, takes its square root, and uses the result to set upper and lower bands according to a configurable multiplier. Exponentiating the center and band values returns them to the price scale.

The method is presented as analogous to Bollinger Bands, with an exponentially weighted standard deviation replacing a conventional rolling dispersion measure. The document provides an implementation recipe but no trading rules for interpreting band touches, no parameter guidance beyond the formula, and no performance or risk evaluation. It therefore describes an indicator calculation rather than a tested strategy; users would need to define and validate how the bands inform entries, exits, or risk controls.

Key ideas

• The calculation applies an exponential moving average to log prices.
• It updates variance using the squared difference between price and the moving average.
• The square root of the weighted variance determines band width.
• A configurable multiplier sets the upper and lower bands around the center line.
• The document provides no evidence that a particular trading use of the bands is profitable.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.