June 2006

Bollinger Band Squeeze
by Howard Arrington

One use of the Bollinger Band study is to indicate when the market has entered a narrow trading range.  A narrow range indicates momentary balance between buyers and sellers.   As the trading range becomes narrower, and the market volatility lessens, the spread between the Bollinger Bands becomes smaller.  This condition of the Bollinger Bands squeezing together is highlighted on this chart by the red zones using the Design Your Own (DYO) study.

Line A reads the Spread between the Bollinger Bands and stores this value in Global Variable (GV) 1.   Line B will read the value in Global Variable 1 and compare it to a Number.

The Line B Number parameter is the size in chart scale points for marking the squeeze condition.  The example shows bands that are within 2.0 e-mini points of each other.   When Line B evaluates to a Boolean True, then the vertical stripe ZONe marker is added to the chart using the light red color.

Tip:   Trade in the direction of the break-out from the narrow range of the Bollinger Band Squeeze.

Question:

I was on the phone with Larry Pesavento discussing how to calculate the harmonic for a symbol.  He mentioned that Ensign has a tool that will automatically calculate swing values.   Is Larry possibly referring to a study you created for him?

Answer:

Larry is referring to the proprietary Pesavento Patterns tool in Ensign Windows which draws the swing lines.  The study can use the Delta $ markers to show the size of the swings (change in price from the ends of a trend line).  Look for common (similar) sizes of the swings such as the 3.25, 5.25 points and 8.00 points on the ES e-mini chart.   The common swing sizes are the natural harmonics for the symbol.  To find the higher harmonic numbers, look at the common swing sizes on a 30-minute chart.

Click this link to watch a 4-minute video about the Pesavento Patterns study.

Raw stochastic is the percentage of where a price is in a range of highest high - lowest low over a set of bars.   Some call the raw value Fast %K.

          Raw Stochastic = 100 * (Last - LowestLow) / (HighestHigh - LowestLow).

Slow %K is an average of the Raw Stochastic.  Some call this first average Fast %D.

Slow %D is an average of the Slow %K.   This is the 2nd average.

Ensign Windows has 4 choices of which formula to use for calculating the averages.  The average used for the original Stochastic work was an exponential moving average.  However, variations using simple average, weighted average and smoothed average are also worthy and useful Stochastic calculations.

The smoothed average formula is very similar to the exponential formula.  The difference is in how the Alpha decay factor is derived from the average parameter  N.   See these formulas:

          Exponential = Previous Average  +  ((Current Value - Previous Average) / Alpha)   
                    where Alpha = (N+1)/2 

          Smoothed = Previous Average  +  ((Current Value - Previous Average) / Alpha)
                    where Alpha = N

The parameter N is greater than or equal to 1.  If  the parameter entered is less than 1, then invert the parameter using  N = 1 / parameter.

Ensign Windows does not do a 3rd average.   If an average of the Slow %D is wanted, then put on a moving average study and set its Data Point to be the %D value of the Stochastic study.

Click the following links for two excellent articles in past Trading Tips issues for additional information about the Stochastic study.

August 2001    -  Stochastic Fundamental Behavior
October 2001  -  Stochastic Parameters

The Ergodic formula is a ratio of two double averages.   The numerator is an average of an average of the Net.  The denominator is an average of an average of the Absolute value of the Net.  The Net is the difference between a bar's close and the prior bar's close.

   Ergodic = (Average (Average (Net, parameter 1), parameter 2) / (Average (Average (Abs(Net), parameter 1), parameter 2)

The plotted Ergodic study line is not much different than just plotting a small period moving average of the bar's close price.  Let me illustrate with this comparison.

I have used parameters that are smaller than are typically used for Ergodic so that the comparison of similarity to the small period moving average would be more obvious.  You can see the waves are the same, and the turns are identically aligned.   So, in essence the Ergodic is just another moving average.  But, because the Ergodic is a ratio it cannot be plotted on a price scale.  Ergodic has its own scale, and the range for this scale will fluctuate.

The Simple Average (blue line) is using a 2 bar parameter.  The parameters for the two averages in the Ergodic (cyan line) are 26 and 3.

I have been doing this for several years without any negative incidences.  However, caveat emptor.  As a trader you have your hard drives all backed as an image file for restoration, right?   You should because you never know when something funky is going to happen.  You can sure bet that eventually, it will.

1 - Use Window's Explorer to navigate to the Interactive Broker directory:   C:\Jts\dwjefdwhe\
(Editor's Note:   Your installation may have used a different sub-folder name in the  C:\Jts  folder.)

2 - Copy the sub-folder named dwjefdwhe (copy the entire folder...you want ALL the files within that folder)

3 - Save it in a separate folder where you won't lose it  (perhaps to a folder named "IB Configuration Files" on your Desktop)

4 - After the reinstallation of the Trader Workstation (TWS), copy the dwjefdwhe folder back to the C:\Jts\ folder.

When prompted (warned about overwriting the existing dwjefdwhe folder with the new one) select "YES To ALL"

5 - Restart TWS.  All your original settings should be there.

If you have your global folder properties set to "Hide Hidden Files" you may need to change this setting before copying the dwjefdwhe folder.  To change those settings go to Control Panel>Folder Options, select the "View" tab and then check the "Show Hidden Files and Folders" option.  You can change the option back after you have finished copying the dwjefdwhe folder.

If you use IB charts, they are located in another directory.  You'll need to copy them separately.

Even if you do not make disk image file backups you should at least regularly backup this folder.  It will save you a lot of work should you need to reinstall TWS.

This material should help anyone who is unable to view flash videos made with Camtasia (regardless of who made them).   Camtasia is a software program that can produce flash video by recording the screen.  The Ensign web site has over 7 hours of video documenting Ensign Windows.  Click this link to go to the Video directory on Ensign's web site.

Q:  Why won't Camtasia videos play on my computer?   There are 4 possible reasons:

A1:  It is very possible that the Direct X is out of date and thus the flash files won't play.

Here's the link to Microsoft's Direct X download site: 

A2:  You need the correct CODEC.  The following is the explanation of this problem and has links imbedded to download CODEC's.

Camtasia Studio's Support Site:

Although Camtasia Studio can produce videos using any standard Windows codec, by default it uses the supplied TechSmith TSCC codec.  While Camtasia Studio can use other codecs that are installed with the standard installation of Windows such as Microsoft Video 1 or RLE, TSCC will, in most cases, produce  smaller files.   More importantly, TSCC is lossless, meaning that it produces 100% perfect quality videos.  TSCC compressed videos may be edited and recompressed without any video quality degradation.

The file TSCC.EXE is the installation program for the TSCC codec.  It's available for download at TechSmith's web site

You may freely distribute TSCC.EXE.  Simply run TSCC.EXE and it will install the TSCC codec on your system.  This only needs to be done once.  TSCC.EXE may be run in silent mode using the /s command line switch.

Note: For Windows NT/2000/XP users must have administrator rights to install codecs.

A3: Your browser needs to have the permissions set to allow the downloading and running of Active X controls.

MacroMedia's Support Site:   http://www.adobe.com/support/flashplayer/

Security level:  Your Internet Explorer security level may be set to High or a custom level which does not allow viewing of ActiveX controls.

To view your Security level, from within Internet Explorer, choose Tools>Internet Options, and in the Security tab, choose Internet.

Though your browser security settings should be chosen by you or your system administrator, the 'Medium: Default Level' will allow you to view Flash content. For any Custom Level, ensure that both "Download Signed ActiveX controls" and "Run ActiveX controls and plug-ins" are not Disabled. (Enable or Prompt will work).

A4:  Uninstall and Reinstall MacroMedia Flash Player

How to fix almost all Flash Player issues:

A version of Adobe Flash Player is pre-installed with most popular Internet browsers.  Sometimes, problems with a Flash Player that's already installed can prevent your upgrading to the latest player. You can resolve almost all difficulties by taking the following steps:

1. Check System Requirements to ensure your configuration is supported.
2. Make sure you have the latest version of your Internet browser. Installing a new browser can often repair issues with browser installations, and newer browsers may also offer improved security.
3. Uninstall Flash Player (see How to remove Flash Player from your computer above).
4. Restart your computer.
5. Download and install the Flash Player from the Flash Player Download Center.

If you still have problems, move on to Trouble with Windows Installation or Trouble with Macintosh Installation.