The study plots the highest high and the lowest low for the number of periods you specify.
Pane: Overlay
Calculation
The mathematics define an envelope of values by using the highest high and lowest low over a duration of n periods.
Formula
HHt = Max(Ht,Ht-1,...,Ht-n+1)
LLt = Min(Lt,Lt-1,...,Lt-n+1)
HHt = Highest High of period
LLt = Lowest Low of period
Ht = High for current bar
Lt = Low for current bar
Properties
High: The Symbol field on which the study will be calculated. The application uses the Aspect "High".
Low: The Symbol field on which the study will be calculated. The application uses the Aspect "Low".
HighPeriod: The number of bars of the first Moving Average. If the chart displays daily data, then period denotes days; in weekly charts, the period will stand for weeks, and so on. If the default length of the indicator is chosen (Workstation uses a period of 10), the study will return the highest of the high price values / lowest of the low price values over the previous 10 bars.
LowPeriod: The number of bars of the second Moving Average. If the chart displays daily data, then period denotes days; in weekly charts, the period will stand for weeks, and so on. If the default length of the indicator is chosen (Workstation uses a period of 10), the study will return the highest of the high price values / lowest of the low price values over the previous 10 bars.
Interpretation
The rules generally followed for this study are:
enter the market when one of the bands is penetrated. This indicates a possible start of a trend.
exit and reverse the position when the opposite band is penetrated.
Another rule you may want to apply is the Donchion’a rule, which states:
cover short positions and go long whenever the price exceeds the high of the previous four weeks.
reverse long positions and go short whenever the price exceeds the low of the previous four weeks.
You may plot this study as envelopes around the bars in the chart, by first plotting both studies and then dragging and dropping both high/low functions into the chart pane.