Velocity Bands

Velocity Bands creates dynamic deviation-based support and resistance levels that adapt to market conditions. Using outlier-filtered standard deviation calculations, it identifies extreme price conditions and provides signals for mean reversion and reversal setups.

How It Works

Velocity Bands calculates:

• A weighted moving average (WMA) as the center line

• Normalized price deviation from the average

• Outlier filtering to remove extreme spikes

• Standard deviation bands at +1/+2 and -1/-2 levels

The bands dynamically adjust to market volatility, expanding in volatile conditions and contracting in calm markets.

Key Features

Dynamic Bands

Velocity Bands creates four levels:

• +2 Band (Upper Outer): Extreme overbought level

• +1 Band (Upper Inner): Moderate overbought level

• -1 Band (Lower Inner): Moderate oversold level

• -2 Band (Lower Outer): Extreme oversold level

The center line (mean) is displayed as a dotted line, providing a reference point.

Outlier Filtering

Before calculating bands, Velocity Bands filters out outliers (price moves beyond 4 standard deviations). This ensures the bands aren't distorted by extreme spikes or data errors, creating more stable and reliable levels.

Gradient Fills

The bands include gradient fills:

• Base fills: Subtle gradients between +1/+2 and -1/-2 bands

• Enhanced fills: When price is outside the bands, enhanced gradients highlight the extreme condition

Re-entry Signals

When price returns from extreme zones:

• ▼ (Down Arrow): Price re-enters from above the +2 band (bearish mean reversion)

• ▲ (Up Arrow): Price re-enters from below the -2 band (bullish mean reversion)

These signals suggest price is returning to normal levels after an extreme move.

Rejection Signals

When price enters a band but fails to hold:

• Rejection from upper band: Price entered the upper band but closed below it (bearish reversal)

• Rejection from lower band: Price entered the lower band but closed above it (bullish reversal)

These signals indicate potential reversals when price can't sustain moves into the bands.