Arps Hurst Bands– Historic

This indicator plots a series of support and resistance channel lines around a polynomial regression centerline. The formula for the centerline takes the form, a + bx +cx2 + dx3 + ex4 …. The Arps Hurst Bands are spaced so that each channel represents one-half sigma, or standard deviation.

Trading with the Arps Hurst Bands

Prices tend to regress toward the mean, which is represented by the blue centerline on the Arps Hurst Bands chart. It has been observed that when prices cross outside the outer boundaries of the Arps Hurst Bands they almost invariably return to the centerline (reversion to the mean).

The three curvilinear bands above and below and paralleling the centerline represent one, two and three sigma (standard deviations) of the closing prices from the mean centerline. There is only a five-percent chance that prices will exceed the 2-sigma, and less than a one-percent chance that they will exceed the 3-sigma line. So, when prices reach these bands, a relatively low-risk entry opportunity presents itself to trade in the opposite direction of the current move.

Since this particular indicator draws channels retroactively, it will only draw channel lines from a number of bars back equal to the Length input value. In other words, if Length is set to 150 bars, the indicator will only plot its values for the last 150 bars. Whenever a new bar is created on the chart, the indicator is recalculated based on last current 150 back. The more bars back you select, the less sensitive the curvature of the indicator will be. We have found that values between 75 and 150 bars work best.

Arps Hurst Bands - Actual

As you watch the Arps Hurst Bands in action on a real-time chart, you will see that the shape of the bands changes on each bar as the first bar of the previous bar’s regression calculation is dropped from the calculation and the new bar is added into the calculation. Thus, the Arps Hurst Bands – Actual indicator plots the progress of the end point of the Arps Hurst Bands – Historic indicator for each bar on the chart. Thus the Arps Hurst Bands - Actual indicator permits a continuous evaluation of how the relationships of the sigma standard deviation bands changed with time and how the end points looked at the time that particular bar was the last bar on the chart.

If you overlay the Arps Hurst Bands-Historic indicator with the Arps Hurst Bands-Actual indicator, both with the same settings, you will see that the value of the Historic lines on the last bar of the chart will match exactly the value of the corresponding Actual lines on the last bar. In effect, the Arps Hurst Bands - Actual indicator represent a “trail of crumbs” showing where the Arps Hurst Bands-Historic were when each bar was the last bar on the chart. The usefulness of this indicator is to show how the Arps Hurst Bands calculations have behaved in the past as the regression channels are recalculated on every bar.

Same Price Chart as above, using Arps Hurst Bands – Actual indicator:

Arps Hurst Bands Oscillator

The Arps Hurst Bands Oscillator indicator, shown as the oscillator in the lower portion of the price chart above, plots on a straight-line scale the relationship between the price and the Arps Hurst Bands – Actual. The red lines above and below the oscillator represent the “straightened out” 3-sigma channel boundaries, while the green centerline represents the “straightened out” centerline. The purpose of this indicator is to normalize the price in terms of standard deviations from the centerline, thereby displaying when prices are overbought or oversold.

Arps Hurst Bands Centerlines

Another use for the Arps Hurst Bands - Actual calculations is to plot the Arps Hurst Bands Centerline on a chart twice using two different settings for the Order input. The example below shows a blue Arps Hurst Bands-Actual line of Order 3 and a red Arps Hurst Bands-Actual line of Order 4. Note how closely the blue line follows behind price and how responsive it can be to changes in trend direction. When the red crosses the blue, the price is often about to reverse direction. The use of these lines in trend analysis opens a whole new area of potential for better technical analysis tools.

Inputs for all of the Arps Hurst Band indicators are as follows:

Calculate this Order (Default = third; Options are first, second, third, or fourth): This is where you select the order of the polynomial regression equation. An order of 1 will plot a linear regression channel. A “second” order will plot a single-curve channel. The “Third” and “Fourth” order will plot progressively more complex curves.

Over this Length (Default = 150, Range = 30-250): With this input you select the number of bars to include in the regression calculation. Higher numbers give a longer bar interval over which to calculate the polynomial regression channel equation.

Plot this many future segments (Default=0, Range = 0-5): If you set this input to a value greater than zero, you will see a projection of the Hurst bands into the future for the number of bars specified. The accuracy of the bands decreases with the square of the number of bars into the future, so we recommend not trying to plot much further than 5 bars into the future.