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Developed by Jon Anderson, Standard Error Bands are two moving averages based on standard error levels above and below the Linear Regression Indicator(LRI).

As a type of envelope, they are similar in appearance to Bollinger Bands but are calculated and interpreted quite differently. While Bollinger Bands are plotted at standard deviation levels above and below a moving average, Standard Error Bands are plotted at standard error levels above and below the linear regression plot.

Because the spacing between Standard Error Bands is based on the Standard Error of the security, when the two bands are close together, it signifies a strong trend. When the two bands are far apart, prices are more volatile and will tend to fluctuate between the two bands. If the bands are close and then begin to widen, it may signify that the trend is weakening and may possibly be due for a reversal.

The R-Squared indicator works well in combination with Standard Error Bands. Use a high R-Squared  combined with tight bands to confirm a strong trend. A low R-Squared combined with wide bands confirms that prices are consolidating.

 

Calculation:

StdErrBMiddle = MA_{SlowingPeriod}(LRI_Period(Price))

StdErrBTop = MA_{SlowingPeriod}(StdErrBMiddle + ErrFactor*StdErr_Period(Price))

StdErrBBottom = MA_{SlowingPeriod}(StdErrBMiddle - ErrFactor*StdErr_Period(Price))

 

Inputs:

Price Field = Close 

Indicates Open, High, Low or Closing price.

Period = 14

Indicates time period(the number of days for daily analysis, the number of weeks for weekly analysis, etc.).

Error_Factor = 2

Standard Error Bands are plotted at standard error levels above and below the linear regression plot.

Method = Simple

Indicates the MA type used for slowing the values.

Slowing Period = 3 

Indicates slowing MA time period(the number of days for daily analysis, the number of weeks for weekly analysis, etc.).

Horizontal Shift = 0 (Valid only in MyChart.)

Used to shift the values backward or forward on the time scale.

 

Indicator Type: Volatility, Trend