Parametric Moving Average and Alternating Extremity Bands

Summary

This indicator builds a moving average from a parametric kernel whose inputs adjust lag and overshoot. A user-selected lookback sets the data window, while the kernel weights observations across that window. The script estimates dispersion as a moving average of absolute deviations from the filtered price, scales it by a multiplier, and adds and subtracts it from the average to form upper and lower extremities. Price crossings switch which extremity is displayed, creating alternating bands intended to mark possible turning areas.

The notes explain the tradeoff: more lag increases smoothness, while greater overshoot can reduce lag but may cause the average to exceed price extremes. The author suggests using lower-lag settings for a more responsive trend estimate and describes potential bounces in ranges and resistance or support behavior during trends. The indicator also offers smoothed candles, with open derived from earlier filtered values and high, low, and close filtered separately. These are charting interpretations, not demonstrated trading results; the supplied material gives no systematic backtest or rules for position and risk management.

Key ideas

• The kernel parameters let users adjust the moving average’s lag and overshoot behavior.
• The bands are formed by adding and subtracting scaled average absolute deviation from the filtered price.
• Price crossings select alternating upper and lower extremities that may serve as potential reversal areas.
• The author describes a smoothness versus responsiveness tradeoff when tuning the moving average.
• Smoothed candles apply the filter separately to price highs, lows, and closes.

Tags

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